US Payroll Employment for March Shows a Strong Gain

Location: Toronto
Author: RBC Financial Group Economics Department
Date: Monday, April 4, 2011

Payroll employment in March rose a solid 216,000 in March and compared to market expectations of a 190,000 increase. The increase followed upwardly revised gains in February of 194,000 (previously 192,000) and January of 68,000 (previously 63,000). The overall gain continues to be restrained by falling government employment reflecting ongoing fiscal restraint in many jurisdictions. On a private-employment basis, 230,000 jobs were created in March. As well, it is of note that declines in government employment were deepened in the last two months resulting in more sizeable upward revisions to private employment in February to 240,000 (222,000 previously) and in January to 94,000 (68,000 previously). Also indicative of improving labour markets was the reported drop in the unemployment rate to 8.8% from 8.9% in February. This is the fourth consecutive drop in this rate from a recent peak of 9.8% in November.

The overall increase in private employment was skewed toward service-producing industries where activity rose 199,000. Increases were fairly broadly based led by a 78,000 jump in professional and business services. Employment in goods-producing industries rose 31,000 with gains of 17,000 in manufacturing and 15,000 in the mining and logging component. Employment in construction dropped by a negligible 1,000 coming off a 37,000 surge in February.

The overall workweek held steady at 34.3 hours. Manufacturing dropped 0.1 hours to 40.5, thus retracing one-half of the jump in February to 40.6 hours from 40.4 hours in January. Overtime hours held steady at 3.3 hours. The index of aggregate weekly hours, which reflected the combined effect of both employment and hours, rose 0.2%. For the first quarter of 2011, this measure is up an annualized 2.0% thereby implying steady economic growth relative to the 1.9% rise recorded in the fourth quarter of 2010. Allowing for productivity gains, these numbers are generally consistent with our forecast of first-quarter 2011 GDP growth of 2.8% compared to a 3.1% gain in the fourth quarter of 2010.

Despite a steadily falling unemployment rate, the index of average hourly earnings, the principal wage measure in the report, was unchanged in the month. Expectations were for a 0.2% rise but the result in the year-over-year rate remained unchanged at 1.7%.

Indications today of strengthening employment growth in March augur well for consumer spending to rebound after likely growing only 2% in the first quarter of 2011 following the 4% jump in the fourth quarter of 2010. Our forecast assumes that the pace of job gains will continue to accelerate in the months ahead, which along with the payroll tax cuts announced at the start of the year, will send the growth in consumer spending back closer to the pace seen the end of last year. Growth at this pace, if sustained, will help to put further downward pressure on the unemployment rate extending the drop reported today to 8.8% in March from 8.9% in February. Despite this improvement, however, the amount of unused capacity in labour markets remains historically high, thereby meaning it will take considerable time before the unemployment rate falls to a level that is consistent with the Fed's full-employment mandate. As a result, the Fed is likely to maintain the current highly accommodative monetary conditions with the central bank both continuing its asset purchases, the so called QE2, until mid-year 2011 and maintaining Fed funds within it current range of 0% to 0.25% into 2012.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.


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