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    U.S. Payrolls Falter in March, Joining the Parade of Negative Statistics


    Economic reality may have caught up with the labor market as job creation plunged, mirroring other key U.S. statistics that show a dramatically slower economy in the first quarter. 

    Non-farm payrolls added 126,000 positions in March far fewer than the 245,000 forecast, for the lowest gain since December 2013, reported the Labor Department on Friday. Revisions to the two prior months subtracted an additional 69,000 jobs from the tallies.

    The unemployment rate was unchanged at 5.5 percent and the underemployment rate dropped 0.1 percent to 10.9 percent, it first trip below 11.0 percent in more than six years. 

    The labor force participation rate fell to 62.7 percent the lowest since 1978 and the household survey provided just 34,000 new jobs, barely one tenth of the 245,000 forecast. The average workweek fell to 34.5, it had been expected to remain at 34.6.

    And finally, in the only upbeat numbers, average hourly earnings rose 0.3 percent in March, better than the 0.2 percent estimate and the annual increase climbed to 2.1 percent from 2.0 percent.  

    Over the just ended first quarter, the majority of important statistics have come in well below expectations, negative or indicative of cautious consumer and business sectors.

    Retail sales dropped 0.6 percent in March, its third straight monthly contraction. Personal spending in February rose just 0.1 percent, half the forecast, after slipping 0.2 percent in January and December. Factory orders for February rose 0.2 percent, better than the -0.4 percent estimate but January’s result was revised down to -0.7 from -0.2, negating almost all the gain.

    Durable goods orders fell 1.4 percent in February, a huge miss on the 0.2 percent forecast and the prior month's gain was cut by 0.9 percent on revision to 1.9%. New orders for these goods have fallen in four of the past six months.  Durable goods orders ex-transport, in practice excluding the aircraft business  of Boeing Co., fell 0.4 percent in February, well below its 0.2 percent expectation, and the January performance suffered a 1.2 percent downgrade, dropping to -0.9 percent from 0.3 percent.  

    Lastly, the capital goods nondefense ex-aircraft category, a often used proxy for business investment decline 1.4 percent in February  far south of its 0.3 percent prediction. January's orders were hit with a 0.8 percent negative adjustment falling to -0.3 percent from the initial reading of 0.6 percent. 

    Construction spending declined 0.1 percent in February as expected but January was revised down to -1.7 percent from -1.1 percent. 

    The Institute of Supply Management's manufacturing purchasing managers’ index has fallen for six months, from 57.9 last October to 51.5 in March. The new orders component, most indicative of future business, has decreased more than 10 points from 63.0 last October to 51.8 in March. The employment index has slipped from 57.4 in August to 50.0 in March, just at the dividing line between expansion and contraction. 

    Business manufacturing surveys for March from five Federal Reserve districts, New York, Philadelphia, Richmond, Kansas City and Dallas were uniformly worse than forecast with all except Philadelphia and New York  falling to their lowest levels in more than a year. 

    The final revision to fourth quarter GDP left it unchanged at 2.2 percent, slipping the 2.4 percent estimate and less than half the 5.0 percent rate in the third quarter.   

    Estimates for first quarter GDP, which will be reported on April 29th, have been falling for two months. The most up to date is probably that of the Atlanta Federal Reserve whose GDPNow model incorporates new information as it is released. That estimate is now 0.1 percent annualized, having fallen from 2.3 percent as recently as February 13th.

    The weak March payrolls and the uninspiring wage growth since the recession may give the FOMC pause as the governors contemplate raising the Fed Funds rate for the first time in eight years. Chair Janet Yellen had indicated as long as a year ago that the first hike could come in June but recent statements from her and other Fed officials hint at a later date.

    The real surprise in Friday's non-farm payroll report was not that it was so poor, but that it had managed to remain positive for so long despite the weakening economy all around it.

    Joseph Trevisani

    Chief Market Strategist

    WorldWideMarkets Online Trading

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