The mix of new jobs shifted this month, though, with fewer added in construction (just 7,000), after 40,500 average gains in January and February. Some slowdown here was anticipated, since warm weather early in the year boosted construction activity above its seasonal norm—but it is impressive that the correction was merely a slowdown in the rate of job creation, not an outright decline.

This month's sharpest gains came in key private service categories, where the overall increase was 178,000—the best so far this year. Robust job growth in both general merchandise stores (up 26,000) and food services and drinking places (up 33,000) suggests that consumer spending remains healthy. That might seem to be contradicted by the weak year-on-year sales gains reported by chain stores last month, but given the late timing of Easter this year, it would be foolish to draw conclusions from March spending data alone. April will look much better.

There were also sharp job gains in professional and business services, totaling 52,000. Some of these additions were in temporary services (up 16,000), probably lower-end jobs, but there were also 21,000 added in "professional and technical" services. This category includes higher-end jobs like legal services, architectural and engineering services, computer design, and management and technical consulting.

Manufacturing remains the weakest part of the jobs picture. After adding jobs around the turn of the year, it is now shedding workers again, down by 5,000 in March, a testament to the rapid rate of productivity growth in this sector. Manufacturing output growth is robust, but firms are able to produce the extra output with fewer workers.

The household survey showed the unemployment rate edging down from 4.8% to 4.7%, equaling its low for this cycle, with a strong 384,000 increase in employment outpacing the 203,000 increase in the labor force. Hours worked rose 0.2% in March, yielding a 3.0% gain for the first quarter overall, which supports upbeat GDP growth projections (we expect 4.5% growth).

With inflation worries moving to the fore, the wage data in the employment report now get as much attention as the job numbers. The 0.2% increase in today's report was the softest so far this year, and will calm inflation fears a little; the year-on-year gain fell from 3.5% to 3.4%. But with the unemployment rate edging down again, the Fed will remain concerned about tighter "resource utilization" threatening higher inflation down the road.

The overall picture—robust growth, with some threat of higher inflation—suggests that the Fed will raise interest rates at least two more notches, to 5.25% by the end of June.

Contact: Raul Dary

24 Hartwell Ave.
Lexington, MA 02421, USA
Tel: 781.301.9314
Cel: 857.222.0556
Fax: 781.301.9416
raul.dary@globalinsight.com

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