Employment Outlook – Weather and Gasoline
Raymond James
By Scott J. Brown
March 12, 2012
Nonfarm payrolls rose more than expected in February, with an upward revision to figures for December and January. At face value, the job market figures have been strong. However, an unusually mild winter has certainly had an impact. It’s difficult to isolate the effect of mild weather. The labor market is definitely improving, but recent figures may be somewhat exaggerated. As is often the case, mild winter weather may pull forward some seasonal gains that would have otherwise occurred in March and April. In addition, higher gasoline prices threaten to dampen the pace of improvement in the near term.
Private-sector payrolls have averaged a 251,000 monthly increase since November – the strongest three-month average since last April’s 261,000. Last year, gasoline prices peaked in early May, dampening the pace of new hiring. This year, gasoline prices have been rising from a higher base, but that may not mean much given the lackluster growth in average wages. Many consumers are already stretched. Real consumer spending growth was flat in November, December, and January.
The housing market collapse and subsequent recession put significant strain on state and local government budgets. As a result, cutbacks significantly reduced state and local government payrolls, which fell an average of about 20,000 per month in 2011 (when we would normally add 25,000 per month). This contraction directly shaved 0.3 percentage point from overall GDP growth over the last five quarters (and likely subtracted more indirectly), but appears to be reaching an end. State and local government payrolls were essentially unchanged over the last three months. The Challenger Layoff Report noted that government layoff intentions, which led the way in 2011, have moderated considerably. In contrast, job losses at the federal level have increased in recent months and we may see a quicker pace of decline in 2013 (as spending cuts start to kick in).
While the unemployment rate held steady in February, the employment-to-population ratio edged up again. This ratio still appears to have been roughly flat over the last two years, but the near-term trend is higher. Note that an improving labor market will induce many discouraged workers to return to the labor force, which puts upward pressure on the unemployment rate (keeping it higher than it would have been otherwise). It’s unclear whether that’s what we’re seeing now, or whether the latest figures are weather-related or perhaps statistical noise.
The mild weather could serve as a kind of pump-priming – leading to better spending and, in turn, even more job growth. More likely, the weather has led to a borrowing of job strength from March and April. How much is uncertain, but the labor market would likely have been moderately strong (just not as robust) if the weather hadn’t been mild.
The bigger concern may be the increase in gasoline prices, which will dampen already-weak consumer spending growth. A lot depends on how high gasoline prices go and how long they stay high. Reports for March and April will be key.
(c) Raymond James
