friday’s jobs reportdefinitely put a cap on market enthusiasm, suggesting the recovery remains tepid. non-farm payrolls (nfp) added 120,000 jobs in march, well below the 200,000+ recorded over the last three months, indicating seasonal improvements (including warmer weather) , rather than a new phase of stronger job growth, underpins recent labor market strength.
while u.s. equity markets were closed for good friday, futures tanked; dow futures indicate a 142 point decline which would send the index back to 13,000 points. underlying softness will definitely lead to renewed discussion about monetary accommodation and the possibility of fed chairman ben bernanke unleashing a third round of quantitative easing, or qe3.
adding only 120,000 jobs in march means the unemployment rate ticked down to 8.2%, but all of that was due to a decline in the labor force participation rate, which remains stuck near record lows at 63.6%. the total number of unemployed totals 12.7 million, while those without a job for 27 weeks or more (“long-term unemployment”) make up 42.5% of the labor force. as bernanke has repeatedly said, long-bouts of joblessness leads to structural unemployment as skills erode and potential workers fall further out of workforce.in what nomura’s analysts called a “very disappointing report,” the bureau of labor statistics announced meager job creation in march after what had been above-trend reports over the last couple of months. market expectations were high, with consensus calls for a 205,000 rise to nfps, but the economy disappointed.
another troubling sign is the high number of workers that are “marginally attached to the labor force,” or those that haven’t looked for a job in the last 4 weeks but are willing and able to work. that number stays at a very elevated 2.4 million.
march nfps missed expectations by a wide mark, suggesting market players and economists were over-optimistic about the economic environment. on the one hand, nomura’s analysts suggest that “some payback from three strong months fueled by good weather might have had a significant negative impact.” but the 120,000 jobs added in march were still way off.
construction jobs, for example, fell 7,000 over march. the ailing construction sector, which is very sensitive to the weather, is a further indication of the depressed state of housing markets. with home-prices continuing to fall down the rabbit hole (case-shiller home price indices continue to hit new lows), one can’t expect the housing market to stop pulling the economy down any time soon (despite the impressive stock price performance of lennar and kb home decent move in 2012).
retail weakness is also troubling, where the economy shed 34,000 jobs in march after a 29,000 loss in february. retail sales were actually up over the last couple of months, with firms like target and gaplooking solid, as forbes’ steve schaefer pointed out.
equity markets have rallied strongly this year as economic data began to look more promising. much of the optimism that has been priced in appears to be misplaced, as jim baird of plante moran financial advisors explains:
[friday's] result is also an indication that the recent uptick in the pace of job creation may have been illusory. while the markets were encouraged by the recently stronger pace of job growth, the actual rate of job creation may not have quickened to the degree that the data suggests.
healthy skepticism persists about the calculation of seasonal adjustments, which is intended to help paint a more accurate picture of the real trend. in recent months, concerns had been raised that seasonal adjustments had been overstating reported job creation. today’s report suggests those concerns may have been legitimate.
risk assets tanked over the last couple of weeks on the assumption that bernanke and the fed wouldn’t continue to add monetary stimulus, with gold among the biggest losers. the latest fomc statement, coupled with the minutes from that meeting, were interpreted as an acknowledgement of the improved economic situation, which in turn took qe3 off the table for now.
friday’s weak report forces the discussion to gravitate back to a more qe3-prone environment. while the weak number alone isn’t enough to force the fed into action in the upcoming april 24-25 fomc meeting, as barclays’ analysts argue, “the soft employment numbers certainly leave the door open for further accommodation and may shift the decision point to the june fomc as the fed continues to monitor the incoming data.”