Strong March employment growth

The Bureau of Labor Statistics reported today that U.S. nonfarm payrolls, as measured by their survey of establishments, increased by a seasonally adjusted 180,000 workers in March.

Given the wild swings in these numbers recently, I’ve been recommending combining these BLS nonfarm payroll numbers with the Bureau’s separate household survey and the private estimates from
Automatic Data Processing. The BLS household survey implied 335,000 more people working in March, while ADP estimated 106,000 new private sector jobs. When you add to that last number the 23,000 new government jobs from the BLS payroll numbers, you get 129,000 total from the ADP estimates.

Regarding the BLS payroll numbers as the most reliable but letting the other two estimates inform the inference as well, we calculate

(0.8 x 180) + (0.1 x 335) + (0.1 x 129) = 190 thousand new jobs

That is, the strong BLS numbers are confirmed by the other two.

Particularly encouraging (and, to me, surprising) was the fact that BLS reported a 56,000 seasonally-adjusted improvement in construction employment in March, enough to erase the losses seen in this component in February.

At some point we might start to get concerned about these reports of high employment growth coinciding with anemic growth of real output, as they signal a slowdown in productivity gains. Productivity growth is by far the most important driver of the long-run growth of potential output.

But my main concern at the moment is not the growth of potential GDP, but rather whether the U.S. may fall below that potential and go into a recession. A decline in productivity can be a harbinger of a drop below potential output, if sales fall off before firms cut back on payrolls. Nevertheless, if employment does not fall, there will be no recession.

One can’t read too much into one month’s numbers. But we can still be a little bit cheered, can’t we?

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25 thoughts on “Strong March employment growth

  1. charts

    it’s certainly stronger than expected. in terms of YOY growth where does that put us? 1.3% year over year. Just trying to gauge whether the rate of job growth is increasing or decreasing? does this report signal a change or more of the same?

  2. pgl

    I tried to be cheerful this morning over at Angrybear (OK, that’s an oxymoron) but my readers starting hammering about weak real wage growth and job losses in the manufacturing sector. And this is during an economy that’s still growing. Such imagine the anger from those bears if we due head into a recession.

  3. spencer

    I generally smooth the data — 3 mth moving average — and on this basis this data is not showing any strength. Hours worked and wage growth on both a year over year and 3 month growth rate still appear to be slowing on a smoothed basis.
    I know it always a trade off between using one months data and smoothed data, but the smoothed data clearly says to not get carried away with one observation. Smoothing may be an especially good idea given how volatile the employment data has become.

  4. eeyore

    C’mon. These numbers are sure to be revised downward. They are what they are to prevent a particularly grim Monday on Wall Street.

  5. Joseph Somsel

    I read somewhere that these figures represent the 43rd straight quarter of employment growth. Can that be correct? That’s 11 years or back to 1996.
    Must be time for a tax increase!

  6. Joseph Somsel

    Thanks – this data set shows continuous employment growth for 42 or 43 MONTHS, not quarters.
    I knew we had a winning streak going.
    Any opinions on how the repeal or lapse of the Bush tax cuts will affect employment increases? I’d appreciate an professional economist’s opinion since this ordinary citizen would suspect that it will work against any continued improvement in employment opportunities except for government workers and tax accountants.

  7. JDH

    Joseph, I grant that a tax increase would depress aggregate demand, and that depressing aggregate demand is not the appropriate policy stance in the face of an economic recession. However: (1) the Fed is also actively trying to manage aggregate demand with monetary policy, and at the moment is in effect trying to use tight monetary policy to undo the stimulus from low taxes, which is usually not a helpful combination. (2) What matters is the state of the economy by the time the tax increases actually take effect. Any recession may have come and gone by then, or the recession may never materialize. But if we do find ourselves in the midst of a recession at the time the tax hikes take effect, I would advocate postponing them.

    In general, I favor using monetary policy alone as the preferred tool for trying to adjust aggregate demand, leaving fiscal policy to be governed by longer run considerations.

  8. dryfly

    The other dryfly isn’t ‘me’ but I wish I’d asked the question first… he/she must be the *smart* dryfly…
    Can somebody explain how 57000 additional teachers get hired in March?
    This question has popped up over & over on the blogs and no one seems to have an answer except maybe parts of the country are adopting a southern hemisphere school year? [/sarcasm]
    If this is a SAAR artifact I’d like to have it explained… and if so makes me want to question the SAAR technique.
    Anyone know?

  9. Martin

    Professor Hamilton,
    That the bulk of the growth is in non-tradeables, with no real growth in, as you say, cosntruction or manufacturing, doesn’t look so good for productivity growth.
    With all due respect to them, it’s doubtful to see how increasing the number of nurses and retail staff will adavnce overall productivity.

  10. Bob

    Maybe someone can answer this question:
    How are retirees counted in the net change?

  11. JDH

    Bob, if an employee of a firm was working last month, and retired and the firm does not replace that person with a new worker this month, that would count as 1 lost job in the establishment survey. Likewise, if an individual told the BLS surveyer last month that he was working, but this month tells the surveyor that he is retired and no longer working, that would count as 1 lost job in the household survey. Since retirement need not be a bad thing, it would be incorrect to assume that a bigger employment total is always a favorable development, as I discussed in my post How many people should be working in America?

  12. Joseph Somsel

    I certainly agree that I find low taxes stimulating!
    I’m working today to pay raise the money for that $3300 in checks I have to write to the IRS and the state of California by April 15. I’d be working anyway but would otherwise save it for a house.
    A liberal might say that paying extra taxes both makes me work longer hours AND dampens the housing bubble. Allowing more government spending and probably reducing personal consumption of imports are further benefits in some peoples’ point of view.
    As to productivity gains, many workers classified as “service” do improve productivity. The guy in IT is a service worker but he helps me be more efficient in my design work for new construction. Likewise, if Whole Foods had had another cashier on duty I’d have been at my desk 10 minutes earlier this morning. Hence, I would think that many if not most service workers aid overall productivity.

  13. Martin

    That service workers improve productivity is not in dispute; my concern is that there are 10 cashiers on the tills at Whole Foods and you’re the only person going to a design job.

  14. Mr X

    Big revision down for the BLS. They didn’t account the earlier arrival of day lights saving time. Through off the series.
    Strong employment growth? Nope.

  15. JDH

    Mr. X, this is beginning to look like a pattern between you and the Dryflies. Folks, if you have an off-the-wall theory, back it up with facts and references, please.

  16. DickF

    JDH wrote:
    In general, I favor using monetary policy alone as the preferred tool for trying to adjust aggregate demand, leaving fiscal policy to be governed by longer run considerations.
    Generally I agree with you. Could you help me with this comment? Are you advocating changing the unit of account to control aggregate demand?

  17. JDH

    DickF, no, I advocate dedicating monetary policy primarily to the long-term goal of keeping inflation around 2%. Monetary policy should also try to avoid recessions to the extent possible, though in my opinion, it is unlikely to be able to achieve that second goal in every case. I further believe that monetary policy historically has erred on the side of too much stimulus at the end of recession or early recovery.

  18. James I. Hymas

    JDH, you’ve mentioned the effect of the tax cuts on aggregate demand.
    The tax cuts have had the effect of increasing the fiscal deficit as they have not been balanced by decreased spending.
    Did your remark refer to the tax cuts qua tax cuts, or was this simply shorthand for the stimulative effect of a budgetary deficit?

  19. JDH

    James Hymas, the act of raising current taxes with current spending constant would be contractionary. You are correct that the act of raising current taxes and simultaneously raising current spending by the same amount would be expansionary. Let me also reiterate that I’m inclined to pay the most attention to this effect when the economy is in a recession, and that I would caution against trying to use fiscal policy to achieve the objective of trying to fight against a recession.

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