Markets & Finance

Jobs: March Sadness


The worse-than-expected payrolls decline of 80,000 for the month puts the U.S. economy squarely on the recession track

by BW, Standard & Poor's, and Action Economics staff

The U.S. labor market weakened at a more rapid pace in March, raising the likelihood that the economy is in recession. The Labor Dept. reported payroll employment in the U.S. plunged 80,000 in March, while the unemployment rate spiked to 5.1% from 4.8% in February. The consensus was for a 50,000 drop in jobs and a rise to 5.0% in the unemployment rate.

That's the lowest job print since March, 2003, and the highest unemployment rate since September, 2005.

The data are much weaker than expected and will add to recession fears, according to S&P Economics.

And the bad news extended into the two preceding months. February's payrolls were down 76,000, revised from –63,000 previously; January's 22,000 decline was revised to 76,000, for a net 67,000 decline over the two months.

The nonfarm payrolls figure could have been much worse, wrote London-based ING Bank (ING) economist Rob Carnell in an Apr. 4 note, "given that payrolls tends to lurch violently from positive to negative during economic downturns such as this."

Construction, Manufacturing Take the Brunt

The data "[add] confirmation to Ben Bernanke's recent assessment of the U.S. economy as likely to flirt with recession in the first two quarters of this year," wrote economist Martin Slaney of GFT Marketing Services in London in an Apr. 4 note. "[T]hough on a realistic assessment of all the data, it is hard to argue that the U.S. is not now already in one."

Job losses were concentrated in construction and manufacturing, which dropped 51,000 and 48,000, respectively. The American Axle & Manufacturing strike was responsible for most of the 24,200 drop in auto manufacturing jobs, closing several General Motors (GM) plants. Service-producing employment was more stable, rising 13,000. The rise in the unemployment rate resulted from a rebound in the labor force after the surprise February drop, which looks clearly like a seasonal fluke.

The three consecutive declines in employment make it difficult to deny the economy is in recession, says S&P chief economist David Wyss, and suggest the Federal Reserve will cut its benchmark interest rate by 50 basis points at its Apr. 30 policy meeting, rather than by 25 basis points as S&P had assumed.

The report prompted Action Economics to revise downward its gross domestic product forecasts for the second and third quarters. But Action points out that the upside surprise in the average workweek and associated hours-worked actually boosts some of its other economic forecasts for March, "leaving further evidence that the economy likely continued to post positive growth through the first quarter."

U.S. stock indexes were mixed on Apr. 4 in the wake of the report, with the Dow Jones industrial average down modestly, but the S&P 500 and Nasdaq indexes slightly higher. "The recessionary trend is there for all to see with worse-than-expected jobs figures, but the market was braced for bad news and seems to be holding up well," says Slaney. "This certainly ups the odds of another fifty basis point cut at the next Fed meeting," he wrote in an Apr. 4 note.


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