by: Zach Bethune, Thomas Cooley, Peter Rupert
Today’s Employment Situation revealed a gloomy picture of the labor market for the first quarter of 2015. Non-farm employment increased by 126,000 in March, well below expectations. Job growth in January and February was revised down by 13%. Ovearall the picture is one of a stagnant labor market in the first quarter. The unemployment rate remained unchanged, wages increased slightly and hours worked declined slightly. The transition rate from unemployment to employment remained unchanged.
What are the implications of these developments for the future? Some of the decline in job growth is due to declining oil and commodity prices. Employment in the mining sector and construction fell as drilling declined sharply. Some of it was due to particularly severe winter which slowed economic activity. These are both short term effects. Oil prices will not likely fall much more and the positive effects of consumers having more disposable income will show up gradually over time. If that is all we are dealing with we might expect the damping effect on labor markets to be short-lived. More troubling for the longer term outlook is the dramatic rise in the value of the dollar. Since the beginning of 2015 25 central banks have eased monetary policy. The list includes China, the ECB, and Canada, major trading partners of the U.S. This has pushed up the value of the dollar precipitously and the effects of that on our export industries are only beginning to be felt. Exports declined in the most recent trade report and the effects on employment will, most likely, be increasing and ongoing.
A sluggish labor market and sluggish GDP growth all suggest that Fed will have plenty of reason to be patient at its June meeting and has plenty of breathing room for deciding on the timing of liftoff.