Robert Johnson, CFA) On the
Good Friday market holiday, the government reported that just 120,000
jobs were created in March versus expectations for job creation of at
least 200,000. As one might expect, financial markets reacted badly when
the exchanges reopened on Monday.
Although there are many things for markets to truly worry about
(including the potential for weaker S&P earnings, margin squeezes,
slowing international economies, and a stock market that may have come
too far, too fast), Friday's job report is certainly not at the top of
my list. I gave my initial impressions on the report on Friday, but now that I've thoroughly dug into the numbers, I wanted to add a few more thoughts on the data.
Friday's employment report did nothing to change my outlook for 2012.
This report is volatile and frequently revised, and it incorporates a
ton of seasonal adjustments. One month's worth of data is seldom reason
for panic. That seems especially true now as almost every other
employment metric that I track is still in positive territory--if not
However, job growth has been running ahead of GDP growth for some
time--perhaps aided by weather and seasonal factors--and a slowdown of
some sort was in everyone's forecast for the year. Indeed, Fed Chairman
Ben Bernanke made prominent note of the disconnect between GDP and
employment growth in a speech just two weeks ago. But no one (except maybe Bernanke himself) expected to see a correction so early in the year.
By sector, most industries continued around their annual trend line
with the exception of temporary help and retail on the downside, and
financial services and leisure, which performed well above trend line. I
would characterize most sector growth as slow but steady, with a couple
of outlying sectors driving most of the gains.
There were some silver linings in the report, too. Hourly wage growth
continued its modest improvement in the face of what I believe will be
slowing inflation rates by the end of the year. The recovery is also
becoming more broadly based, with unemployment rates for lower educated
workers dropping faster than highly educated workers, closing some of
the massive gap that opened up during the recession.
Year-Over-Year Data Looks Less Dramatic Than Monthly Data
I continue to advise readers to be exceptionally careful when
interpreting monthly numbers, especially for employment data. Weather,
outdated seasonal factors, and strikes all wreak havoc on short-term
data. That's why my preferred metric remains year-over-year growth
averaged over a three-month period as presented below.