An American economy about to regain its swagger after a year of pandemic-induced crisis was on full display in the March jobs report. The labor market added 916,000 new jobs and the unemployment rate declined to 6% from 6.2%. After adding in the 156,000-job upward revision to the January and February reports, the net change was an increase of 1.072 million in total employment on the month. Given the quantity and quality of fiscal aid in train, and the robust growth that we expect to define the economy in coming months—the RSM full-year GDP forecast is for 7.2% growth—the data suggest that the best of the labor market recovery is still to come. For the U.S. economy and labor market, springtime has arrived.
There were two important policy takeaways from the report. First, one can clearly see the economic benefits of the $1.9 trillion American Rescue Plan, and the $908 billion in aid put forward at the end of last year, as the combination of pent-up demand and fiscal aid bolstered hiring confidence in March. This underscores the resilient and robust Federal Reserve growth forecast of 6.5% GDP growth for the year, and points to what will likely prove to be one of the strongest years of employment growth in recent memory.
Given the quantity and quality of fiscal aid in train, and the robust growth that we expect to define the economy in coming months—the RSM full-year GDP forecast is for 7.2% growth—the data suggest that the best of the labor market recovery is still to come.
Second, the clock is now ticking on the beginning of the Fed’s asset purchase tapering—the central bank is currently running operations of $120 billion per month in asset purchases ($80 billion in U.S. Treasuries and $40 billion in mortgage backed securities) which will impact the shape of the yield curve and likely send the 10-year Treasury yield higher in coming weeks from the current level of 1.7% following the jobs report. While the gaudy hiring numbers for March won’t lead to an immediate policy shift, if the economy puts together a string months like what we’ve seen in March, it will only be a matter of time before expectations on the start of Fed tapering will move up to late 2021, also pulling forward market expectations for the first interest-rate hike into the latter part of 2023.
A little under a year ago, the U.S. economy was down 22.36 million jobs from the pre-pandemic peak of 152.523 million total employment reached in February 2020. If the economy generates anywhere near our expected monthly average of 625,000 new jobs this year, that would pull forward, after adjusting for population growth in the workforce, the return to full employment into late 2022, which is in line with U.S. Treasury Secretary Janet Yellen’s forecast.
Inside the report, the composition of hiring was strong and spread out across the industrial ecosystems that comprise the economy. The high-paying jobs sectors in goods producing (183,000), construction (110,000), manufacturing (53,000), trade and transport (94,000), business services (66,000), education and health (101,000) and government (136,000) accounted for 81% of the job creation on the month which points toward a strong surge in U.S. household consumption. The increase of 1.5% in aggregate hours worked on the month will augment that down-market where the lower-paying leisure and hospitality sector added an additional 280,000 jobs in March after posting 384,000 in February.
The household survey indicated that the labor force participation increased to 61.5%, the employment-to-population ratio advanced to 57.8%. The median duration of unemployment did rise to 19.7 weeks. The alternative to the topline unemployment rate, the U-6 underemployment rate declined to 10.7%. Average hourly earnings on a year-ago basis eased to 4.2% while average weekly earnings advanced by 6.7%.
Going forward, one should expect the data to reflect the return of lower-paid employees to jobs over the remainder of the year and ease back towards longer term averages. The economy still remains 8.4 million jobs short of the pre pandemic peak in February 2020.
