Industry Crib Sheet: March Job Growth Meets Expectations

April 7, 2014

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The U.S. economy added 192,000 jobs in March, which was slightly below economists' predictions of 200,000 new positions, and the national unemployment rate remain unchanged at 7.7 percent. After a winter slump, hiring by U.S. employers is gradually rebounding, and job growth has averaged 183,000 jobs per month over the last 12 months.

The latest Department of Labor report also upwardly revised February's job growth from 175,000 to 197,000 jobs and determined that U.S. employers added a revised 144,000 positions (from 129,000) to their payrolls in January.

While economists' consensus had pegged the unemployment rate to tick down to 6.6 percent, the department report was described as in line with expectations. Along with stable jobless claims data, it prompted encouraging views among some analysts that the labor market will continue to strengthen into the warmer months.

"The immediate future for job creation seems to be robust, especially considering we are on the cusp of a tremendous econo-thaw in the USA," Todd M. Schoenberger, managing partner at LandColt Capital, commented to Fox Business. Schoenberger believes job creation will also benefit from revitalized consumer demand, which has pent up through the early months of the year as a result of extreme cold temperatures.

Other observers were more muted about job growth and the momentum of the economy, partly because there have been meager improvements in longer-term employment data. Last month, 7.4 million persons were working part time due to their hours being cut back or inability to find full-time positions. This figure dropped significantly at the beginning of the year but has stubbornly risen back. "Full-time jobs are what we need to get economic growth going," said Lance Roberts, chief executive at STA Wealth Management.

The Labor Department said 2.2 million individuals were not counted as part of the labor force last month because they had not searched for work even though they were available. This number is essentially the same as a year ago. The national unemployment rate has fallen in part because of individuals leaving the workforce.

The labor force participation rate, at 63.2 percent, hovers near the record-low level set in December. The number of long-term unemployed, while down 837,000 from a year ago, hardly budged in March at 3.7 million and represented nearly 36 percent of all unemployed in the country. More than 10 million people were counted as being part of the labor force and out of work last month, a number that has been stubbornly still through the first quarter of the year.

The 192,000 jobs added last month came mainly from professional and business services (57,000), food and beverage services (30,000), health care (19,000), construction (19,000), and mining and logging (7,000). Manufacturing employment shrank by 1,000 jobs. In the government sector, a cut of 9,000 jobs at the federal level was negated by an increase of 8,000 local municipal jobs.

Meanwhile, new jobless claims rose by 16,000 to 326,000 for the week that ended March 29. Economists had expected the weekly number to increase to 317,000. However, the four-week moving average in unemployment claims was down to 319,500, signaling further stabilization in the national labor market.

Factory Orders Show Manufacturing's Turnabout

The Commerce Department's factory orders report for February confirmed an earlier report by the Institute for Supply Management (ISM) that manufacturing has been rebounding since the winter slump that was exacerbated by inclement weather. U.S. orders for manufactured goods in February rebounded from a revised 1.0 percent decline in January with a 1.6 percent jump, beating a 1.2 percent consensus that economists had forecast. Meanwhile, the ISM purchasing managers index (PMI) for March grew by 0.5 points to 53.7, showing manufacturing continues to push forward into spring.

February factory orders achieved the biggest gains in five months and reversed a two-month slide. Manufacturers' shipments rose by 0.9 percent to its strongest showing since last July. However, demand for core capital goods, a harbinger of business spending, dropped by 1.4 percent after a promising 1.5 percent rise in January.

After brutal winter conditions put a freeze on supply deliveries and factory activity, manufacturers are still playing catch-up. Unfilled orders, up 12 of the last 13 months, crawled up by 0.3 percent to the highest-recorded level by the Commerce Department. The rise in shipments, though, helped lower the unfilled orders-to-shipments ratio from 6.52 to 6.50.

In ISM's March report anecdotes, one manufacturer commented, "Weather has created major delays on inbound materials and outbound sales. We need spring."

Manufacturers are also still working off an inventory glut generated by precipitous stockpiling in the third quarter of last year and unsold goods. Inventories similarly pushed upward by 0.7 percent to a new record high and have gone up in 14 of the last 15 months.

In the volatile transportation equipment sector, orders for both commercial aircraft and cars rebounded after two straight months of declines. Bookings for planes and parts had dropped by 22 percent in both December and January before the 13.4 percent improvement in February. U.S. auto plants received a 3 percent jump in orders for the month. Excluding transportation, all other manufacturing industries saw a 0.7 percent increase new bookings.

Among durable goods, computer demand roared back from January's dismal 48.2 percent dive with a 64.2 percent surge in orders. Household appliance demand showed recovery but was still down for the month (-1.5 percent). In the defense sector, communications equipment spending also turned around in February (9.2 percent), which offset a 4.9 percent slowdown in search and navigation equipment (-4.9 percent).

Businesses tightened up their purse strings in February after making capital investments in machinery the previous month. Orders for mining, oil field, and gas field machinery dropped by 13.3 percent after soaring 25.4 percent at the start of the year. HVAC spending fell 3.4 percent, while metal fabrication shops curtailed their spending as metalworking machinery orders slipped 4.9 percent. Power transmission equipment purchases slowed considerably from 18.3 percent in January to just 0.6 percent growth. Material-handling equipment declined 2.4 percent but recovered from a -7.3 percent January.

ISM's headline PMI indicated manufacturing activity slowed from February into March but still grew. The March new orders index improved from 54.5 to 55.1 percent, after a 3.3 point jump in February. Factory activity, as measured by the production index of 55.9, was cranking again after production contracted in February. Manufacturing employment grew for the ninth straight month but slowed down, from February's 52.3 to 51.1.

Many manufacturers are still waiting on supplier deliveries, which slowed from 58.5 to 54.0 in March. Backlogs accelerated from 52.0 to 57.5, and inventories grew at the same rate as in February. Manufacturers said their customers' inventories, which continued to plummet, are too low currently, which is a hopeful sign for higher impending sales.

ISM noted that the transportation equipment industry grew in March along with 13 other industries, including petroleum and coal products, plastics and rubber, paper products, fabricated metal products, machinery, and computer and electronic products. From anecdotes in the ISM report, one manufacturer reported, "Business [is] beginning to heat up, along with the weather."

Trade Gap Busts Open in February, but China Closes

The U.S. monthly trade gap widened in February for the second straight month on a 1.1 percent drop in exports and a 0.4 percent increase in imports, bucking the economists' predictions that the country's goods and services imbalance with foreign trade partners would narrow for the month. The trade deficit ballooned by 7.7 percent to $42.3 billion.

Foreign demand for American goods and services was its lowest in five months, at $190.4 billion. Imports, meanwhile, grew to $232.7 billion. The deficit was aided by a drop in crude oil imports to its lowest level in more than three years, as well as by lower petroleum imports. However, a rise in crude oil prices led to lower petroleum as well as energy exports in February.

Experts note that the cooling of export activity will further depress first-quarter economic growth, which already has been slowed by the weather-caused dampening on manufacturing and a deceleration in consumer spending. "Trade is going to be a little bit of a drag for first-quarter growth," said RBS Securities' U.S. economist, Guy Berger, in a Bloomberg report.

Still, many economists are expecting the trade gap to slowly tighten because of the domestic energy renaissance, which is making the country less dependent on oil and fuel imports. The nation's petroleum trade deficit is at its smallest level in four years.

The Associated Press reported that the nation's trade deficit after February is running 4.5 percent below the same period in 2013, when the country reduced its overall goods and services shortfall to the lowest since 2009.

Imports, however, hit their highest mark since last October. Demand for foreign cars and consumer goods went up, but they were offset somewhat by declines in incoming capital goods and industrial supplies. This included drops in purchases of computers, telecommunications equipment, metalworking equipment, and material-handling equipment and reflected the general decline in capital investments by American businesses in February (see factory orders report above).

U.S. demand for Chinese imports plummeted by more than 25 percent in February, from $27.8 billion to $20.9 billion. Year-to-date imports from the world's second-biggest economy are running at almost $50 billion lower than the same period last year. China's manufacturing sector has slumped in recent months because of both weaker domestic and foreign demand for goods produced by the nation.

U.S. trade shortfalls with the European Union, Germany, Canada, India, and South Korea also shrunk in the month.

Photo credit: Tulane Publications via Flickr 
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