Payroll gains cool in March, but real wages edge up

The March employment report showed sharply slowing payroll gains after a long string of robust monthly gains. The BLS reported today that payroll employment increased just 126,000 in March, a notable fall compared with an average gain of 281,000 in the previous six months. Adding to the bad news, the BLS erased 69,000 of previously reported job gains in January and February. The downward revisions mean that nonfarm payrolls rose an average of slightly less than 200,000 a month in the first quarter of the year.

Even the disappointing payroll number for March is comfortably above the level needed to keep the unemployment rate on a downward trajectory. Given the age structure of the American population, about 50,000 to 70,000 new jobs a month are needed to hold the unemployment rate constant. Even though many will be disappointed by the latest payroll numbers, the fact is that job growth remains strong enough to keep us on a path towards full employment.

The weak job numbers in March are partly explained by employment losses in goods-producing industries. Mining, manufacturing, and construction all saw job losses in the month. Even though the losses in manufacturing and construction were small, both industries had seen moderate to strong job gains in previous months. The employment loss in the mining industry, which includes energy extraction, is hardly surprising. The sharp drop in energy prices has reduced the attractiveness of new exploration.

Most of the falloff in job gains was in service-producing industries, hardly surprising in view of the fact that the service sector accounts for 5 out of every 6 jobs in the private sector. Although many service-producing industries saw a moderate drop in new payroll jobs in March, the decline in the leisure and hospitality industry was particularly large. Government payrolls fell slightly in March. Public employment has been astonishingly weak throughout the recovery, falling in five successive years through 2013.

The unemployment rate was unchanged in March, remaining at its lowest level since May 2008. Reported employment gains in the BLS household survey were meager. The unemployment rate was unchanged because the number of adults in the labor force edged down in March. The labor force participation rate—the percent of the population that is either employed or seeking a job—fell 0.1 percentage points in March. So far in the recovery there has been only a small rebound in the participation rate of the prime-age population (adults between 25 and 54). In the year before the Great Recession the participation rate in this age group was 83.0%. By late 2013 it had fallen to 80.6% a drop of 2.4 percentage points. The prime-age participation rate has improved since then, but in March it was still just 80.9%. Thus, only 0.3 points of the 2.4 percentage-point drop in the participation rate has been reversed so far in the recovery. This means there are still many potential workers available to enter the workforce who have not yet been persuaded to start looking for a job.

One heartening sign in the latest report is the gradual increase in the percentage of jobs that offer full-time work schedules. Even though overall employment growth was meager last month, the percentage of employed adults reporting their job usually offers full-time hours increased to a level not seen since 2008. The number of workers who say they work on a part-time schedule even though they want a full-time job increased slightly in March, but it has fallen more than a quarter since the high point in the recession.

Wage gains in the recovery have been slow. Nominal wage gains have averaged about 2% a year over the past five years, approximately the same as the rate of consumer price inflation. In recent months, however, price levels fell because of the unexpected drop in energy prices. As a result, nominal wage gains have comfortably exceeded the increase in consumer prices. In the latest jobs report, for example, real hourly earnings climbed 2.1% in the 12 months ending in February 2015; real weekly earnings rose 2.7%. Even though the increase is traceable to an unanticipated fall in gas and oil prices, it is encouraging that U.S. workers are finally seeing noticeable improvements in their take-home pay. Despite the gains in real wages, the pace of nominal wage gains remains subdued.