March Job Gains Good, But Market May Have Hit Plateau

Strong job growth suggests that a warm winter wasn't the only thing behind a thawing economy.

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The nation's private sector added 209,000 jobs in March, according to payroll processing firm ADP. That's another strong showing for the job market, after 230,000 private-sector jobs were added in February and 182,000 were added in January, according to ADP estimates.

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While the job market appears to be on the mend, job growth may need to accelerate substantially in order to bring the jobless rate down. According to Labor Department estimates, the economy added an average of 245,000 jobs over the last three months. That is an encouraging sign of recovery, but some experts are beginning to worry that job growth has plateaued.

"While I'm pleased with today's number—another month, another 200,000 jobs—I'm left with this concern that we aren't stepping up to the next level here," said Joel Prakken, chairman of consulting firm Macroeconomic Advisers.

That "next-level" job market would look much more robust than the current situation, says Prakken, adding 300,000 to 400,000 jobs per month. That level may be necessary, he says, in order to bring the jobless rate down, even as discouraged workers rejoin the labor force.

Since the unemployment rate is calculated as a percentage of people in the labor force—people either working or looking for work—a surge of people ready to look for jobs again would mean that many more monthly job gains could be necessary to further reduce the jobless rate.

According to Prakken, if the labor force participation rate holds constant, it still takes around 125,000 new jobs per month to keep the unemployment rate where it is. So while 200,000 new jobs could bring down the jobless rate, it could just as easily have no effect.

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"Numbers like [Wednesday's] could be consistent with a decline in the employment rate to be reported on Friday, unless there is an uptick in the labor force participation rate, in which case we would need job growth this fast or even faster to push the unemployment rate down," says Prakken.

Still, Prakken emphasizes that 209,000 new jobs is a strong number, and Wednesday's ADP report contained a few other bright spots.

One is the construction industry, which ADP estimates grew by 13,000 jobs last month. Construction was hit particularly hard during the recession and is having difficulty rebounding. Rising employment numbers in construction not only signify an improving job market, but also potential improvements in housing, one of the biggest drags on the recovery.

The ADP report also suggests that actual economic growth, and not just an unseasonably warm winter, was behind the country's recent job gains. Some experts had predicted that the spring would mean fewer new jobs as the effect of the warm winter wore off. March's ADP figure suggests otherwise.

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"Today's number doesn't show such a decline or such a weakening. It's pretty much in line with the last several months of increases," says Prakken. "So that either means the weather story is not a good one, or if there is a weather effect, then the underlying numbers are even stronger than the ones reported [Wednesday]."