Employment Situation

The employment report was a major disappointment. Payroll employment rose some 120,000, significantly less than the over 200,000 anticipated. Moreover, the household survey displayed a
-31,000 drop in employment.

The unemployment rate did tick down from 8.3%to 8.2%. But that was largely because the labor force fell -164,000

Moreover, the average work week fell from 34.6 to 34.5 hours so that the index of aggregate hours worked only rose 0.1%.

The index of hours worked has been raising a red flag about the numerous other signs of stronger
employment and an acceleration of economic growth. They are not showing the recent improvement that other employment data have been reporting Recently, unit labor cost has been rising faster than prices, implying margin pressure and very weak profits. To sustain profits growth, firms have to reestablish stronger productivity growth. The weakness in March employment is a strong indicator that business is trying to rebuild productivity growth and profits growth.

Average hourly earnings only rose from $23,34 to $23.39 so average hourly earnings continued to slow. The year over year gain is now only 1.7%, a new record low. Moreorer, weekly earnings growth slowed to only 2.2%. The recent improvement in retail sales had been driven largely by a decline in consumer savings and their are serious questions about how long this could be sustained.

No wonder Bernanke is reluctant to end quantitative easing despite political pressure and Taylor rule type indicators suggesting that fed funds should be raised.