Jobs miss

March payrolls grew by just 98k, almost half the estimate of up 180k and the two prior months were revised down by 38k. Of this, the private sector added just 89k jobs vs the estimate of up 170k. In contrast, the household survey said 472k new jobs were created and because the size of the labor force grew by 145k, the U3 unemployment rate fell to 4.5% from 4.7%, the lowest since May 2007 and is just one tenth from matching the low in the mid 2000’s expansion. The U6 all in rate was down by 3 tenths to 8.9%, the lowest since December ’07 and not far from the 7.9% low in ’06. In terms of age breakdown, the job growth here was broad based with the 25-54 yr olds in particular seeing a gain of 186k. The most notable drop in the unemployment rate was for those without a high school diploma where the rate dropped to 6.8% from 7.9% but more so do to a drop in the labor force in this category (a higher minimum wage does not help the unskilled). The participation rate held at 63% while the employment/population ratio did rise one tenth to the most since February ’09 but still remains well below the ’06 peak of 63.4.

In stark contrast to what ADP said, just 6k construction jobs were added and 11k were added to manufacturing. The service side was where the real weakness was though as just 61k private sector jobs here created vs 125k in February and 153k in January. Retail, not surprisingly but distressing to see, shed 30k jobs after losing 31k in the month prior. The ‘information’ sector hasn’t seen net job growth since September.

Hourly wages were higher by .2% m/o/m and 2.7% y/o/y as expected and weekly earnings were up by .2% m/o/m and 2.4% y/o/y, pretty much in line with the modest trend. Hours worked was 34.3 and last month was revised lower by .1 to this level. Positively there was a drop in the number of those Not in the Labor Force to 94.5mm from 94.76mm last month and those discouraged fell within this.

Weather wasn’t much of a factor as 164k people with a job but not at work due to weather compares with 192k in the same month last year.

Bottom line, while disappointing, the 3 month trend of 178k is really not much different than the 187k average seen in 2016 and just confirms the slowing we’ve seen over the past few years. Monthly job gains averaged 226k in 2015 and 250k back in 2014. I want to make something very clear, we are late cycle in this economic expansion and with the unemployment rate now down to 8.9% all in and 4.5% in the widely followed U3, it is tougher and tougher to find good employees and thus it is the supply side of the equation that is the likely reason for this jobs miss relative to expectations. That said, economic growth is likely to be only about 1% this quarter and with weak productivity as almost 180k jobs per month is not adding much in terms of growth.

The 10 yr is barely holding the lower end of its 2.30-2.60% range after it broke below for a few minutes right after the print. I’m still bearish on bonds and don’t believe we break much below these levels. As for stocks, that tax reform better come sooner rather than later because anything that gets shifted into 2018 will just halt activity in 2017.