U.S. Employment Report: Three Strikes and Out

January and February losses were revised upward by 67,000. As a result, the string of monthly payroll declines so far this year is now 76,000, 76,000, and 80,000—for a loss of 232,000 jobs since December. Private employment dropped 98,000 and has now fallen for four straight months, shedding 300,000 jobs. The goods-producing side of the economy took it on the chin, eliminating 93,000 jobs, 51,000 of those in construction and 48,000 in manufacturing. The private services-producing portion of the economy slimmed down by 5,000 jobs, while government added 18,000 workers.

Construction and manufacturing suffered large employment losses, but healthcare and private education payrolls rose by 42,000. Food services hired enough workers to boost accommodations/food service positions by 18,000. Finance held payrolls steady, while real estate shed jobs. Retail trade and transportation trimmed payrolls, as did the wholesale trade sector. There were scattered pockets of stability or gains outside of government, but they were not significant.

The unemployment rate jumped from 4.8% in February to 5.1% in March, spiking in all demographic categories except for teenagers, where the rate declined simply because these young potential workers dropped out of the work force in a sluggish job market.

The jump in the jobless rate was largely the result of statistical noise in the measurement of the labor force. According to the report, the labor force fell by 450,000 in February and rebounded by 410,000 in March. Together with a token 24,000-worker drop in employment, March's labor-force rebound was enough to send the unemployment rate up by 0.3 percentage point. Noise aside, the jobless rate is deteriorating, but not as quickly as the March report implies.

The workweek got a bit longer in March. But January's and February's estimates were revised down, resulting in no change for the first quarter.

While the headline number was a little worse than expected, after correcting for the American Axle strike, private-sector employment declined at an average monthly rate of about 87,333 in the first quarter of 2008, which is not a particularly shocking number. Declines of this order of magnitude are consistent with our view of a shallow recession during the first half of 2008, with GDP projected to decline just less than 0.5%, on average, in the first two quarters.

The latest jobless claims numbers—of more than 400,00—send a bad signal about the April jobs report, unless these prove to be an Easter-related quirk. With prospects for employment and the economy remaining weak, the Federal Reserve's bias towards lower interest rates should stay intact. Global Insight projects that the FOMC will lower rates by a further 50 basis points at the end of April, bringing the federal funds rate down to 1.75%.