Job market strong, wages weak

INDICATOR>> March Jobs, Manufacturing Activity and Consumer Sentiment

KEYDATA>> Payrolls: +215,000; Private: +195,000; Unemployment Rate: 5 percent (up from 4.9 percent); wages: +0.3 percent/ ISM Manufacturing Index: +2.3 points; Orders: +6.8 points/ U. Michigan Sentiment: -0.7 point

IN A NUTSHELL>> “Economy to presidential candidates: It’s not about jobs, it’s about wages.”

WHAT IT MEANS>> All the presidential candidates want to create more jobs. Well, this economy is already doing a good job of that.

The economy added a lot of new positions in March and that

happened despite continued weakness in energyrelated sectors and manufacturing. Together those areas reduced payrolls by over 40,000 positions and that doesn’t count the jobs lost in transportation due to reduced shipments.

Outside those areas, though, the gains were really good and maybe most importantly, were spread across all pay levels. Construction, health care, retail, wholesale, finance,

professional services and leisure and hospitality all hired like crazy.

While the unemployment rate ticked up, that too was actually a positive sign because we are seeing a return of the discouraged worker. The labor force participation rate has slowly increased and the labor force is surging. People are much more confident they can get a job in this economy.

While firms paid up a little more in March, wage gains are just not accelerating rapidly.

The Institute for Supply Management’s Manufacturing

Index jumped in March led by a sharp rise in new orders. Production was up and order books filled once again. Nevertheless, hiring did drop, though if demand remains strong, that may not be sustained.

The University of Michigan’s Consumer Sentiment Index edged down in March as a late month improvement couldn’t overcome an early month decline. But it was nice that the trend is back up and that holds out hope that confidence will rise in April. MARKETS AND FED POLICY IMPLICATIONS>>

This report shows we have a pretty good economy, if you believe that firms only hire when conditions warrant it. The job gains may not be as strong as they were for much of last year, but that is due to sectoral, not general economic weakness.

And if we believe that the manufacturing sector has stabilized, the huge 29,000 March drop in industrial jobs will likely disappear in the April report. The real issue, though, is lagging wages. That remains the missing link that Chair Yellen

needs to see before she goes all-in on raising rates. It would be nice if we could create new positions so fast that firms had no choice but to increase wages sharply in order to attract workers.

But in this global economy, we are doing as well as possible and probably a little better. So the question for our presidential candidates, if they ever decide to act presidential, is not how do you create more jobs, but how do you get wages to rise faster?

It would be nice if they presented ideas to accomplish that, but I am not sure if some of them have any. That’s because either the labor market forces businesses to do it on their own or the government intervenes in the market. There are proposals to raise the minimum wage, but there are few ideas about how to get businesses to act.

Joel L. Naroff is president and chief economist of Naroff Economic Advisors. He can be reached at 215-497-9050 or joel@naroffeconomics.com. On the Web: www.naroffeconomics.com