- Unemployment falls to the lowest level for the pandemic; jobless claims at 52-year low.
- Inflation is running at the highest level since 1982.
- Tax refund season started slowly, but refunds are at record highs.
The March employment report showed a deceleration in job creation, but the unemployment rate fell to the lowest level for the pandemic. Labor force participation grew again to the highest level for the pandemic. Consistent with a strong labor market, continuing claims have fallen and are now at a 52-year low.
Wage growth remains strong. Spending growth slowed in February despite income gains, and the savings rate increased as a result. Consumers spent less on goods in February but more on services. Inflation moved higher to the highest level since 1982.
Tax refund season has started slowly this year. Through March 25, only 45% of projected refunds for the year had been issued, when, in 2019 71% had been by the same time. However, the average refund is up 14% versus 2019, and up 12% year over year to the highest refund ever recorded at this stage of tax refund season. That bodes well for spending in April.
Measures of consumer confidence and sentiment saw mixed trends in March with confidence improving slightly and sentiment declining. The most dynamic measure of sentiment saw clear improvement in the second half of March after gas prices peaked and came down slightly.
Spending slowed: Consumer spending slowed significantly in February to nominal growth of just 0.2% from an upwardly revised increase of 2.7% in January. Spending slowed despite improving growth in income, as personal income increased 0.5% in February from January, following an upwardly revised increase of 0.1% in January. Income growth should be strong and more stable now that the impact of declining government support has faded.
Employee compensation grew 0.7% in February as government transfer payments declined 0.3% with unemployment benefit payments falling. Spending on durable goods declined 2.5% in February, spending on nondurable goods declined 0.1%, and spending on services increased 0.9%. Spending on motor vehicles and parts declined 4% in February following a 12.3% increase in January.
Savings climb: The personal savings rate increased to 6.3% with improving income and declining spending. The savings rate averaged 7.5% in the 12 months leading up to the pandemic but averaged 12% in 2021.
Inflation high: The Personal Consumption Expenditure Index (PCE), the key gauge of inflation that the Fed follows, increased 0.6% in February, which was an increase from the downwardly revised 0.5% increase in January. Overall price inflation according to the PCE increased to 6.4% from a year ago in February, which was the highest year-to-year change since January 1982. Factoring in inflation, real spending declined 0.4% in February.
Job growth decelerated: Job growth decelerated in March to 431,000 jobs created when 490,000 had been expected, but the prior two monthly numbers were revised up for a net increase of 95,000 more jobs than originally estimated. Leisure and hospitality had the largest gain of 112,000, but that too was a deceleration from 154,000 in February. Auto dealers added 3,500 jobs, leaving employment down 78,000 or 6.0% below the February 2020 level. With the latest data, total payrolls are down by 1.6 million from February 2020.
The Bureau of Labor Statistics reported that 2.5 million people reported that they had been unable to work in mid-March because their employer closed or lost business due to the pandemic. That number was down 40% from the 4.2 million reported in February. The number of people reporting they were teleworking declined to 10% from 13% in February and 15.4% in January.
Unemployment new low: The headline unemployment rate declined to 3.6% in March, which was a new pandemic low and just 0.1 percentage points higher than the rate in February 2020.
The labor force participation rate increased to 62.4% from 62.3% in February, which was a new high for the pandemic but still down 1.0 percentage points from February 2020. The difference in labor force participation represents 2.6 million fewer people in the labor force compared to February 2020. The underemployment rate, which is the broadest measure of unemployment, declined to 6.9%, the level it was in January 2020.
Average hourly earnings increased 0.4% in March from February, leaving earnings up 5.6% from a year ago.
Unemployment rate drops: As of March 19, 1.31 million people were on traditional unemployment benefits. That number was the lowest since January 1970. The broadest measure of continuing benefits declined to 1.78 million, which was 327,000 lower than the 2.10 million level prior to the pandemic. Initial claims were 202,000 in the latest week. Initial claims averaged 212,000 per week in 2020 in the weeks before the pandemic began.
Consumer sentiment mixed: Consumer Confidence, according to the Conference Board, increased 1.4% in March when a decline had been expected, but the February index was revised down, so the March index came in very close to expectations.
The underlying measures of present situation and future expectations moved in opposite directions as present situation improved but future expectations declined.
Plans to purchase a vehicle in the next six months declined and remained down from a year ago. The sentiment index from the University of Michigan declined 5.4% in March as current conditions and expectations both declined with inflation accelerating.
The Morning Consult index daily index declined 1.4% in March, but it was down 6% at mid-month at the peak of gas prices, which have since declined slightly.
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The next Auto Market Report video will be published on Smoke on Cars on Tuesday, April 12.
Jonathan Smoke is the chief economist at Cox Automotive.