INDICATOR:  March Employment Report

KEY DATA:  Orders: -1.4%; Excluding Aircraft: -0.4%; Capital Goods: -1.4%; Backlogs: -0.5%

IN A NUTSHELL:  "Businesses are showing distinct signs of cautiousness when it comes to buying big-ticket items."

WHAT IT MEANS:  I was warning this week that the data just could surprise on the downside and I wasn't disappointed.   It's just that the size of the surprise was a surprise.  We had been getting jobs reports that were just not in synch with the underlying economy.  And let's not forget, the data always bounce around.  Well, they did in March, as payrolls rose by about half the expected number.  In addition, the previous two months increases were revised downward significantly.  The roughly 200,000 per month average gain during the first quarter is closer to what could be supported by the softer growth.  Job gains were reported in the usual places, including retail, wholesale, finance, health care, leisure and hospitality.  Did weather play a part in the weakness?  That is not overly clear, but the drop in construction and truck transportation provide some support for that view.  Also, there was a decline in the hours worked and the economy didn't fall apart so much that we should have seen that happen.  On the positive side, the average hourly wage rose solidly and wage gains are starting to accelerate.  They are still nowhere near the point where workers will actually think they are getting their fair share of earnings.  
 
On the unemployment front, the rate remained constant, which is good news.  The labor force and participation rates did fall, but again, given the weather, that was hardly a surprise.  The number of people working part-time because they could only find that type of work, declined.  That group that represents the true labor market reserve and the numbers have finally starting coming down.

MARKETS AND FED POLICY IMPLICATIONS

: There is little doubt that after this month, the markets will assume the Fed is on hold until the next millennium, or next year, whichever comes sooner.  But as I noted all this week, we get surprisingly good and surprisingly bad jobs reports all the time.  In other words, if you don’t like the report, wait a month, it will change.  Don’t be surprised if the April numbers are well above consensus.  The Fed members know that one month of numbers tells them nothing and I doubt that those who are arguing for a sooner rather than later rate hike will change their views on the subject.  But if the Fed needs cover to raise rates, this report gave them little.  I also said during the week that the wage numbers could be better than expected, and they were.  If we got even a mediocre payroll report, that would have been the focus of attention.  It wasn’t.  That is a warning that many remain focused on finding weakness rather than strength.  When the job numbers were good and the wage data were soft, it was all about wages.  Today, it is all about jobs.  Picking and choosing the data that suits one’s views is normal and we all do that.  But the indication of a tight labor market is rising wages and we are getting that warning.  It will be interesting to see how the equity markets react on Monday.

--