• If a payrolls number drops in the forest but nobody's there to hear it, does it make a sound? Today's nonfarm payrolls numbers fell far short of expectations, with reported establishment job growth measuring a measly 120,000, the poorest showing in five months, when the confidence blow over the US ratings downgrade was still impacting economic results. Today's numbers will inevitably jump-start fear that the winter spike in job growth was in fact a temporary and weather-driven phenomenon, as we had feared.
• Our weather argument centers around the idea that an unusually warm Dec - Feb period pulled forward what would normally be Springtime payroll additions. Under that theory, as the calendar flips to March and now April, we would actually expect the labor markets to weaken to below-trend levels for a few months, before returning to ~150K-175K monthly expansion. This March result, while not fully confirming the weather-driven pull forward, is certainly one more datapoint in favor of the theory.
• Total payroll growth measured 120,000, while the private sector added a similar 121,000 jobs, indicating only minimal public sector pullbacks for a second consecutive month. When it comes to industry trends, somewhat surprisingly, much of the softness in growth came from the services industry, notably business services and the healthcare sectors. Those two industries alone accounted for 82,000 of the 120,000 slowdown between February and March results. Construction demand was again soft (furthering the pull forward argument), though manufacturing industries added a very health 37,000 payrolls.
• What the hey is going on with the unemployment rate? For the last six months, unemployment has slid 0.8%, beating out what's been mixed results in the establishment survey. We saw that trend continue in March with another 0.1% drop, driven entirely by a decline in labor force participation. The participation rate is down 0.4% YOY, equivalent to 2.3 million workers who are "not in the labor force," largely for lack of available jobs. While we had previously cheered the decline in the number of long term unemployed, it's conceivable this decline was more about the unemployed giving up, rather than those individuals finding jobs.
• On balance, today's employment report turns back the clock about five months, and, from our perspective, brings into question the sustainability of job growth through the middle portion of 2012. Whether it's the weather, gas prices, or soft underlying fundamentals, the results are nonetheless the most distressing piece of economic news we've seen in some time.
Guy LeBas is the chief fixed income strategist for Janney Montgomery Scott LLC.
