A Hint of Weakness in the Employment Report?

The employment report came in above expectations, rebounding from an upwardly-revised but still weak February payrolls gain of 33k to a solid 196k in March. In short, the American jobs machine continues to roll forward:

That kind of strength will leave the Fed felling confident that they do not need to cut rates in the near-term. Moreover, the continued stability of the unemployment rate means they don’t have to hike rates either.

Hence, their strategy of remaining patient still holds.

On a monthly basis, wage growth pulled back, but on an annualized basis is holding in the range of 3 to 3.5%:

That translates into real wage growth hovering around 1 to 1.5%, assuming 2% inflation, right about the range experienced just before the recession:

On the surface, this is another “Goldilocks” report – strong job growth, low and steady unemployment and nothing in the wage data to support inflation concerns. A hint of weakness, however, is visible in the temporary help numbers:

The slowdown in temporary help hiring is consistent with other periods of decelerating growth, most recently the 2015-16 episode. To be sure, it could arguably also be a precursor to recession, but I think the current environment is still best described as “slowdown not recession.” That certainly is the story from the most recent initial unemployment claims report:

Nothing there yet to suggest that a deeper slowdown of activity is underway. That said, I have been a long supporter of temporary help employment as a leading indicator, and I would be remiss in my analysis if I didn’t identify it as something to keep an eye on. One can also look toward softness over the part two months in manufacturing and retail trade as signs that activity is slowing underneath the surface of the numbers.

Bottom Line: The employment report gives little reason for the Fed to exit its “patient” policy stance. Keep an eye on the temporary employment numbers. It’s a leading indicator in the report; recent declines are notable.