Disappointing Jobs Report Revives Talk of Fed Easing

March’s disappointing jobs report shows the reversal of warm weather hiring, but also some troubling trends that are already sparking talk of more Federal Reserve easing.


The 120,000 nonfarm payrolls added in March were well below the 203,000 expected, but the unemployment rate fell to 8.2 percent from 8.3 percent.

February’s payrolls growth was revised higher to 240,000 from 227,000, but the January jobs number was revised lower by 9,000 to 275,000.

In March, manufacturers added 37,000 jobs, while jobs in the construction industry fell by 7,000 and temporary workers, an important barometer, dropped by 7,500.

“It’s in part a payback for warm weather. You see that in the construction and retail side. The labor force dropped, and that’s why the unemployment rate went down. Here, in a strong economy, you’re supposed to be encouraged by people coming back to the labor force because they’re expecting to get jobs,” said David Ader, chief Treasury strategist at CRT Capital.

After the 8:30 a.m. ET report, buyers rushed into the bond market, driving yields lower in a holiday-shortened session. The 10-year was yielding 2.07 percent, off from its session high yield of 2.225 percent.

“We’re tweaking the data, so have the odds just gone more in favor of (Fed) easing? Absolutely,” said Ader.

Stock index futures fell, but the stock market was closed for the Good Friday holiday and will not reopen until Monday.

“The world wasn’t nearly as rosy as the data suggested in the winter, and it’s not going to be nearly as dark as today’s number suggests,” said Mark Zandi, chief economist at Moody’s Economy.com. “Our bar is a lot higher now. When you get a few months of 200,000 or 250,000, 120,000 is really disappointing.”

Traders have viewed the March jobs report as a key piece of data for the Fed to consider before its April 24-25 meeting. The Fed , after the release of its March meeting minutes Tuesday, was viewed as being unlikely to act at the April meeting because there was no unified support for more quantitative easing , or QE, among members.

But the markets have bet there’s a chance for a “QE3” sometime this year, because Fed officials have said they could carry out another program of asset purchases if the economy runs into trouble. Fed Chairman Ben Bernanke has also sent mixed signals to markets about the Fed’s intentions, though he has always left the option of more easing as a possibility.

Mesirow Financial Chief Economist Diane Swonk said the March jobs report gives justification to a speech the Fed chairman gave last week on the deeper troubles of the labor market. That speech painted a bleak picture, and created speculation that more easing could be coming this spring.

“There was good reason to be cautious and the Fed, it looks like they were well justified. I don’t think it’s QE3 necessarily, but I think what the Fed can do is increase (Operation) ‘Twist,’ Swonk said, referring to a Fed program that ends in June. “That’s something they can do that’s less controversial.”

In ‘Operation Twist,’ the Fed has been buying long-dated Treasurys and selling the same amount of short-dated securities, in an effort to drive long-term rates down.

A third QE would likely involve the Fed purchases of hundreds of billions of dollars of mortgage securities, based on previous comments from Fed officials.

Economy.com’s Zandi said he does not think the one March employment report means QE is more likely.

“It’s certainly on the table but not because of this. The pressure for QE is really low. You can’t dismiss it, but I don’t think they yet have enough evidence to engage in QE. It’s not just the jobs data. The inflation data is not consistent with QE,” he said. “The economy may slow enough this spring into summer, where they decide another round of QE is necessary, but now I’d say no. The odds are still less than 50/50.”

Economists had been expecting a weather effect to show up in the jobs report sometime in the next couple of months. The unseasonably warm winter, stretching back to December, was expected to have driven more job growth during the winter in construction and other areas, which would ultimately impact spring hiring statistics.

“I was expecting to be disappointed at some point this spring…It juiced things up through the winter, December, January, February, even November. There was going to be seasonal payback. I didn’t think it was going to be March,” said Zandi. “Retail was the biggest disappointment. You usually get 20,000 or 25,000. We lost 35,000...But if you look at retail (sales), it’s pretty solid.”

Swonk of Mesirow Financial expects to see hiring improve in April.

“I think we have some give back to some of the strength we’ve seen. I do see a pickup next month, but the reality is we’re not going to see the 300,000 to 400,000 we need at this stage of the game,” she said.

Swonk said health-care jobs were particularly worrisome. While still adding positions, it was just at the rate of 26,000 in March. In February, 71,000 education and health-care services jobs were added, and the number had averaged well above 35,000 in the prior six months.

“I do think it’s significant health-care services is slowing down. This is an area where spending was affected. We’ve seen a slowdown in the consumption of health care because it’s discretionary,” she said.

Temporary jobs, a signal of future permanent hiring, also fell by 7,500 after rising by more than 50,000 in February.

Tig Gilliam, CEO of Adecco North America, said that while he sees hiring of temporary workers slowing, hiring of permanent workers is accelerating. There is an important recent, and positive change in the job market, he said, a trend he hasn’t seen in three years.

“In engineering, IT, finance, and accounting, we’re now at 25 to 50 percent of the candidates we’re making offers to, have second offers,” he said. “It changes the mindset of hiring managers.”

Gilliam says there’s a 2 percent to 3 percent unemployment rate in those skill sets in most markets.

Follow Patti Domm on Twitter: @pattidomm

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