March Jobs Report Beats Expectations
The March Employment Report easily beat expectations of 660,000 new jobs with 916,000 jobs created. Private payrolls posted 780,000 new jobs versus 643,000 expected. In addition, the prior two months were adjusted higher with 156,000 more jobs than initially reported. So, after some softness in December and January, the labor market appears to be getting its mojo back with back to back solid job gains and that will bring hope to the more than 9.7 million still unemployed from the pandemic which is 4 million higher than February 2020. Meanwhile, the unemployment rate ticked two-tenths lower to 6.0%. That’s a 1.8% drop in six months. Yet, the Fed is more likely to focus on the underemployment rate, a broader measure of unemployment which dipped to 10.7% from 11.1% in February. It bottomed at 6.9% in December 2019 and the Fed will want to see it get close to that before declaring mission accomplished. Also, the labor force participation rate (labor force/civilian population) ticked up to 61.5% from 61.4% the prior month. It was 63.3% a year ago, prior to the pandemic. Despite the nice headline beat, until the underemployment and labor force participation numbers return to near pre-pandemic levels, indicating something close to full employment, the Fed will be very patient before tightening monetary policy, and that still seems a couple years away.
More on the Jobs Report
- For the month, 916,000 jobs were created versus an expectation of 660,000. The gain is the largest since August’s 1.58 million print. Private payrolls gained 780,000 jobs versus 558,000 in February. In addition, the prior two months were adjusted higher by 156,000 jobs. The services sector as a whole gained a strong 597,000 jobs with leisure/hospitality leading the way with 280,000 new jobs as good news on vaccinations and virus case counts led to further re-openings. The other leading category in services was Education and Health Care Services which posted a healthy gain of 101,000 jobs. Goods-producing jobs reversed a weather-induced decline in February with 183,000 new jobs for the month with construction adding 110,000 positions and manufacturing adding 53,000 positions.
- The unemployment rate dipped again to 6.0% from 6.2% in February. It’s dropped a solid 1.8% in the last six months but some of the decline in that period was from annual benchmarking changes which lowered the unemployed and labor force numbers. The decline in the size of the labor force in the past year is a trend the Fed will want to see reverse and there was an addition of 347,000 persons this month but it’s still down by more than 2 million from a year ago. Fed Chair Powell has laid out one of the three criteria to lifting the fed funds rate is a return to full employment. If we use the pre-pandemic low of 3.5%, or close to it, as a marker for full employment we’re 2.5% away. The Household Survey—which is used to generate the various employment ratios— found unemployed persons fell by 262,000 to 9.7 million. The labor force participation rate (labor force/civilian population) ticked up to 61.5% after being at 61.4% for two straight months. It was 63.3% a year ago. Finally, the underemployment rate which is a broader measure of unemployment as it adds those working part-time but wanting full-time work and those marginally attached to the labor force (out of work and not having looked for a job in the preceding four weeks) dipped to 10.7%. It was as low as 6.9% prior to the pandemic. This is a key number for the Fed in deciding when we are back to full employment and as you can see we’re still a long way off.
Fed Doesn’t Want Australian Experience
We came across this graph yesterday from Citigroup and the title reminded us of something we mentioned on Wednesday about rates and home price appreciation. The Australian central bank has been practicing yield curve controls (YCC) to limit long-end rate increases and Citi implies that is partly responsible for the rapid home price escalation, the highest in 35 years. We highlighted on Wednesday the S&P CoreLogic 20-City index was beginning to approach price appreciation rates last seen in the housing bubble in the early 2000’s. We all know how that ended. This is all to say that if some think the Fed will soon come to the rescue and start buying the long end of the curve to limit rate increases our prior housing experience and that of the Aussies may give them reason to pause.
Copper/Gold Ratio Still Points to Higher 10yr Treasury Yields
We couldn’t help ourselves, and frankly it’s been awhile since we dragged out the Copper/Gold Ratio versus 10yr yields, so here it is. While an initial glance at the graph seems to imply 10yr Treasury yields (blue line) have more work to do to the upside, the copper/gold ratio (white line) does seem to be rolling over a bit after that spike higher in early 2021. The question is how much of that spike will it retrace, and given the generally rosy economic outlook it does seem like more of a pause, or partial retracement, before the uptrend resumes. Some other technical Treasury indicators point to an impending counter-trend rally as well after the bear run of the last two months, but longer-term the uptrend in yields still seems the path of least resistance.
|Treasury Curve||Today||Chg Last Wk.||LIBOR Rates||Today||Chg Last Wk.||FF/Prime||Rate||Swap Rates||Rate|
|3 Month||0.01%||Unch||1 Mo LIBOR||0.11%||Unch||FF Target Rate||0.00%-0.25%||3 Year||0.520%|
|6 Month||0.03%||Unch||3 Mo LIBOR||0.19%||Unch||Prime Rate||3.25%||5 Year||1.041%|
|2 Year||0.17%||+0.03%||6 Mo LIBOR||0.21%||Unch||IOER||0.10%||10 Year||1.732%|
|10 Year||1.69%||+0.01%||12 Mo LIBOR||0.28%||Unch||SOFR||0.01%|
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