Declining Labor Participation Remains a Key Qualifier

The March employment report surprised to the downside. The US economy added 126,000 jobs during the month, the smallest net increase in two years. In contrast, economists' projections had centered on payroll gains of 245,000 jobs, a number more consistent with the last twelve months' healthy run. Stocks shrugged off the miss while yields on Treasuries slipped in anticipation of a more patient Federal Open Market Committee. Needless to say, one month does not make a trend. Several other measures of the labor market, including first-time unemployment claims, suggest we are still moving in the right direction, albeit without tremendous momentum. 

Goods-producing occupations, which had been growing at a faster pace than service jobs for the better part of the last year, were an observable drag on the March headline, declining by 13,000 jobs during the month. Mining dropped 11,000 jobs and is down 30,000 jobs so far in 2015. To the extent those losses can be tied to commodity prices, we can take heart that lower energy costs are an overwhelming net positive for the US economy, even if some occupations or regions of the country are impacted negatively.

Digging past the headline number, the jobs report was mixed. The private service-providing economy saw payroll gains slow to 142,000 jobs, down from 244,000 the month before. Hourly wages improved, but the impact on pay was largely offset by a dip in average hours worked, most notably for construction workers. The net result was a decline in average private-sector weekly earnings (as an artifact of the statistics, the index increased 0.2 percent while the actual measure of weekly wage slipped). Slow wage gains remain a challenge and a key point of consideration for the Federal Reserve.  The widely-followed U-3 unemployment rates was steady at 5.5 percent, just above the the Federal Reserve's apparent benchmark for the non-accelerating inflation rate of unemployment (NAIRU).

The unemployment rate is clearly an imperfect measure of engagement, in particular because declining labor participation remains one of the major qualifiers of the jobs recovery. The overall labor participation rate fell to 62.7 percent in March, to its lowest level in more than 35 years. Economist with an eye for demographics will be quick to point out the context of an aging population. There is still good reason for concern; participation is on a downward trend even if we isolate prime working-age Americans between 25 and 54 or college-educated adults. The latter saw their participation rate fall to 74.3 percent in March, the lowest level in the Bureau of Labor Statistics' historical series.