Post-Polar Vortex Jobs Report

After disappointing, weather-related readings over the past few months, the Labor Department’s March employment report should see a return to the pre-polar-vortex trend of 190-thousand new jobs. But that’s just back to where we were: When will the big uptick in job creation finally arrive? Economists note that the steady decline in initial jobless claims points to a pick-up to over 200,000 a month in the next few months.  The analysts at Capital Economics are more upbeat, saying that they  “wouldn't rule out a gain in non-farm payrolls of more than 300,000 next month.” The unemployment rate should remain at or just below February’s 6.7 percent, but investors will also keep an eye on another labor market indicator that Fed Chief Janet Yellen mentioned as a variable in the central bank’s policy-making process - long-term unemployment, which counts the number of people out of work for more than six months. As of the last report, there were 3.8 million long-term unemployed Americans and the long-term unemployment rate was 2.5 percent, double its 1.2 percent long-run average.  Compare that still-high rate with the short-term unemployment rate, which at 4.2 percent in February, is now below its long-run average of 5.2 percent.

A new paper from the Brookings Institute analyzes long-term unemployment. Unfortunately, only 11 percent of those who were long-term unemployed in a given month returned to steady, full-time employment a year later. Even after finding another job, reemployment does not fully reset the clock for the long-term unemployed, who are frequently jobless again soon after they gain reemployment.

Why has long-term unemployment persisted? “There is no clear structural reason why long-term unemployment should have developed into such a particular problem in this economic cycle. The most likely explanation is simply that the severity and length of the recession and the weak recovery that followed explains why so many people fell into long-term unemployment.”

Some economists have feared that the throngs of the long-term unemployed were part of the reason that wage growth has remained muted for everyone else. The Brookings paper argues “The short-term unemployment rate is a much stronger predictor of inflation and real wage growth than the overall unemployment rate in the U.S. Even in good times, the long-term unemployed are on the margins of the labor market, with diminished job prospects and high labor force withdrawal rates, and as a result they exert little pressure on wage growth or inflation.”

While the plight of the long-term unemployed has a devastating human impact, the paper posits that it may not bode ill for the jobs and wage recovery.

MARKETS: After last year’s 30 percent gains, markets have been trading in a narrow range for the past 6 weeks and many investors believe that those conditions will persist. In the latest American Association of Individual Investors’ weekly survey, neutral sentiment, the expectation that stock prices will stay essentially unchanged over the next six months, jumped to 40.2 percent, the highest level since April 14, 2005 and the 12th straight week above the historical average of 30.5 percent.

• DJIA: 16,323, up 0.1% on week, down 1.5% YTD
• S&P 500: 1857, down 0.5% on week, up 0.5% YTD
• NASDAQ: 4155, down 2.8% on week, down 0.5% YTD
• 10-Year Treasury yield: 2.72% (from 2.75% a week ago)
• April Crude Oil: $101.67, up 2.2% on week
• June Gold: 1294.30, down 3.1% on week
• AAA Nat'l average price for gallon of regular Gas: $3.54 (from $3.64 a year ago)

THE WEEK AHEAD

Mon 3/31:

9:45 Chicago PMI

10:30 Dallas Fed Survey

Tues 4/1:

Motor Vehicle Sales

10:00 Construction Spending

10:00 ISM Manufacturing Index

GM CEO Mary Barra testifies before Congress on the recall of over 2.5 million cars

Weds 4/2:

8:15 ADP Private Jobs

10:00 Factory Orders

Thurs 4/3:

7:30 Challenger Job Cuts

8:30 Weekly Jobless Claims

8:30 International Trade

10:00 ISM Non-Manufacturing

Fri 4/4:

8:30 March employment report