HFF Analysis of the March 2017 BLS Employment Report

Friday, April 7, 2017

HFF is pleased to report on the latest employment expansion statistics from March 2017. Our research team analyzes trends and data to give readers a better view into the current state of the economy and how employment is being affected.

Employment Expansion

U.S. job growth slowed sharply in March as nonfarm payrolls added a much lower than expected 98,000. February figures were revised downwards to 219,000. Wages grew 2.7 percent year-over-year. Payroll creation has averaged 199,000 since October 2010, marking the 78th month of consecutive growth. The unemployment rate fell to 4.5 percent, the lowest level since May 2007. The rate drop suggests the labor market is at or near the level the Federal Reserve considers full employment.

The underemployment rate fell to 8.9 percent in March, the lowest level since December 2007, offering more evidence the labor market is tightening. The labor force participation rate remained at 63 percent in March, which is near a multi-decade low.

Average Payroll Creation Slowing

The current expansion cycle is similar to 1991 to 2000 and greater than the 2004 to 2007 expansionary period, but only after a significantly delayed recapture of the nation’s previous employment peak.

The U.S. created 2.16 million jobs in 2016, the smallest gain for a calendar year since 2011. The last six years’ job growth is on par with the expansionary period from 1992 to 1995.

In 2016, the U.S. created 2.16 million jobs. But nearly 32 percent of private-sector job gains came from construction, manufacturing, retailers, hotels, restaurants and temporary help agencies, all typically low-paying sectors. Combined, Retail Trade (59,000) and Leisure and Hospitality (258,000) created approximately 317,000 jobs in the year ending March 2017, accounting for some 14 percent of the headline growth nationwide. Retail Trade accounts for 30 percent of the headline Trade, Transportation and Utilities growth. We can therefore assume continued broad-based growth in the retail and industrial property types as we progress deeper into the economic recovery.

Professional Business Services, the industry sector most closely aligned with office using employment, experienced expansion of 639,000 jobs in the year ending March 2017, the highest of any major employment sector. Fortunately, Temporary Staffing only accounted for 110,000 (approximately 17 percent) of these positions. Temporary Staffing is slowing, however, implying hesitance in hiring the lowest-cost employees companies can find in tentative expansions.

Education and Health Services, which, being a recession-resistant industry, has performed well throughout the downturn, expanded by 527,000 jobs in the year ending March 2017. Mining and Logging continues to undermine headline growth but turned positive this month by adding approximately 3,000 jobs in the year ending March 2017.

Unemployment Rate

The Underemployment Rate augments the Unemployment Rate to include anyone marginally attached to the Labor Force that is either not employed or employed only part time. Fortunately, the Underemployment Rate has descending from a recent high of just over 17 percent. However, the spread between the two rates is near an all-time high and shows no sign of rapid compression. The unemployment rate dropped down to 4.5 percent in March, the lowest level since May 2007. The underemployment rate dropped to 8.9 percent in March, the lowest level since December 2007, offering more evidence the labor market is tightening.

Wage Growth

As the labor force approaches “full employment,” much attention has been cast to wage growth. The past three recessions were preceded by a period of FOMC tightening. Average hourly earnings growth exceeded four percent in each of these periods, as overall economic activity became reflected in strong wage growth. With the current year-over-year wage growth registering  approximately 2.7 percent, one could argue overall economic activity has not yet reached levels that precede recessionary periods (often accompanied, if not triggered by, FOMC tightening to counter inflationary forces).

Sources: HFF Research, Bureau of Labor Statistics, Department of Labor, Bloomberg

Prepared by:  HFF Research Analyst Morgan Allen

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