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March jobs report is a Goldilocks number for the Fed

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      By Andrew Szczurowski, CFA, Portfolio Manager, Global Income Group, Eaton Vance Management

      Boston - U.S. payroll growth returned to form in March with the economy adding 196k jobs, a bit above the 177k consensus.

      After the economy added just 20k jobs last month, fears grew that the economy and labor market were rolling over. Now, it looks like those fears of the labor market's demise were greatly exaggerated, and weather distortions in February were the likely culprit for the soft report. The fact remains, we still have a record number of job openings (nearly 7.6 million) and I believe it is not the economy holding back payroll growth, it is a shortage of labor (only 6.2 million unemployed).

      Getting to the details of today's report:

      The unemployment rate held steady at 3.8%, hovering just above its 3.7% cycle low. Given that we are nine years into the jobs recovery and the unemployment rate is less than half of where it was in 2010, we should expect job growth to slow a bit as we start to run out of slack in the labor force. The 196k job gains in March are almost right on top of the 200k average over the last 102 months.

      The only negative in today's report came on the wage front, with average hourly earnings rising just 0.1% month over month, falling back to 3.2% year over year. While the loss of momentum in wage growth is disappointing, it is also important not to get too worked up over one weak print, as there can be a lot of noise in the monthly data. On a positive note, the average hours worked rose from 34.4 to 34.5, normally a leading indicator of future job growth.

      Looking at the sector breakdown, as I seem to say every month, the health care sector continued to be the biggest driver of new job creation, adding 49k jobs in March. The construction sector also rebounded from the weather-distorted 25k job losses in February to 16k job gains in March. Last but not least, bars and restaurants added 27k jobs in March, another sign that the consumer remains in good shape.

      Bottom line: As far as the Fed goes, this is a perfect Goldilocks number ... not too hot and not too cold. It shows the labor market is not rolling over, and wages have not yet accelerated to a point that warrants ending the Fed's rate pause. While the U.S. economy may not grow 3% like it did in 2018, that does not mean it is going into a recession. First-quarter GDP may come in on the weaker end next month, but let's not forget the government was shut down for 35 days and that Q1 GDP over the last 18 years has averaged just 1.45%, compared to 2.75% for the second quarter. Even if growth slows to the low to mid 2% area, that is still right around the 2.18% average growth rate the U.S. economy had from 2010 to 2017.