Another Month of Sharp Deterioration in the U.S. Labor Market

The overall magnitude of job losses and their distribution across almost all major sectors was very similar in March to February. The only major sectors adding jobs this month were healthcare and the federal government (and even in healthcare, the pace of job additions has slowed).

Manufacturing cut 161,000 jobs in March, compared with 169,000 in February. After a pause in February, auto industry employment declined again in March (down 18,000). There were continued heavy job losses in most other sectors of manufacturing, notably fabricated metals (down 28,000) and machinery (down 27,000). Only beverages and tobacco added workers. Not only did manufacturing employment fall, but hours per week declined another 0.5%. Overall hours worked fell 2.1% in manufacturing, as producers tried to bring excess inventories down. Although this is a sharp decline, it is the least severe since November.

Construction lost 126,000 jobs, with heavy cutbacks in both the residential (down 59,000) and nonresidential (down 57,000) segments. Residential construction has fallen so far that the downside is limited from here, but that is not the case on the nonresidential side, where the downturn is only gathering force now.

The service sector lost 358,000 jobs, with the cuts widespread. Retail trade (down 48,000), wholesale trade (down 31,000), and transportation and warehousing (down 34,000) all lost heavily, as the flow of goods through the economy continued to weaken. The financial sector lost 43,000 jobs. Low-end temporary help jobs fell 72,000, while high-end professional and technical jobs fell 31,000, with architectural and engineering services hit especially hard (down 16,000). Accommodations and food lost 32,000 jobs, as businesses are squeezing expense budgets and households are cutting back on leisure spending. The only major private service sector still adding jobs was healthcare, up 14,000 this month. Even in healthcare, the recession is taking its toll, since that 14,000 increase is roughly half the average 27,000 increase over the last 12 months.

Government employment was down 5,000 overall, with the federal government adding 7,000 jobs, but state and local payrolls losing 12,000 as budget pressures bit harder.

The headline unemployment rate rose from 8.1% to 8.5%, although it understates they degree to which the labor market has softened. The most comprehensive measure of underemployment—which includes workers who would like a job but are not currently looking, plus those working part time who would rather work full time—has now risen to 15.6%, up from 14.8% in February. This rate has risen 6.5 percentage points over the past 12 months, while the official unemployment rate has risen 3.4 percentage points. The difference is mainly accounted for by an increase in involuntary part-time work.

We cannot find green shoots of recovery in this report—although it would not be the first place we would expect to see them. The jobs market will follow rather than lead. An increase in weekly hours would be a signal that the outlook is improving—but weekly hours fell today. Temporary help is another leading indicator. There is a hint, but no more than a hint, that the rate of decline in temporary help is easing (down 72,000, versus a peak loss of 90,000 in January).

We do expect the economy's rate of decline (in terms of GDP) to soften in the second quarter, and for it to hit bottom in the second half of the year. But we do not expect the turnaround to be rapid enough to prevent the unemployment rate hitting 10% before it peaks, and the total job loss from exceeding 7 million.