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March Jobs: Out Like a Lamb

April 6, 2018
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Guest blog by Dr. Tom Cunningham, Economist and MST Advisory Services, Senior Advisor- Economics

Consistent with the old maxim, “In like a lion, out like a lamb,” the March Bureau of Labor Statistics jobs report tempered February’s big gains with a net job creation figure of just 103,000, well below the expected 193,000. Given February’s numbers, some giveback was expected, though not so substantial. 

Manufacturing, healthcare, mining, and business services continued to add jobs, while most other sectors were little changed. Construction lost 15,000 jobs, but again, some fallback could have been expected after the sector added 65,000 jobs in February. There was also a decline, though slight, in retail employment.   

Each month’s report includes revisions to previous months’ numbers and March’s update revised figures for both February and January slightly downward. On a positive note for workers, however, hourly earnings for March continued to increase at an encouraging pace, rising eight cents. 

Headline unemployment, those on unemployment rolls (U3), remained at 4.1 percent, unchanged for the sixth consecutive month. The broader measure of labor under-utilization (U6) fell from 8.2 percent to 8.0 percent, a return to its November level. Overall, though the March report is disappointing, the job market remains strong with unemployment rates at historically low levels. 

Most noteworthy of recent economic news is the increasing trade tension between the U.S. and China. Tariffs already in effect will pose meaningful challenges to some agriculture-dependent U.S. localities, and proposed tariffs, if enforced, will worsen those difficulties and extend them to more U.S. communities. In particular, increasing tensions and stiffening tariff stances could put communities dependent on exports of pork and soybeans in serious financial peril. 

These are the kind of impending threats that CECL was designed to protect financial institutions against. If CECL were in place today, a reasonable forward-looking forecast would suggest that if you have loans to pork or soybean producers, or more broadly and less obviously, commercial loans in communities in Iowa or the Mississippi River Basin, your assumptions about future loan losses would drive your allowance to higher levels.

Learn more about economic impacts that lenders will face as they create reasonable and supportable forecasts at the National CECL Conference.


About the Author

Tom Cunningham holds a Ph.D. in economics from Columbia University and was senior economist with the Federal Reserve Bank of Atlanta from 1985 to 2015. Mr. Cunningham serves as a consultant to MST in the creation and ongoing development of the MST Virtual Economist and is the MST Advisory economics specialist

Why should lenders consider the monthly jobs report?

As employment is a key factor in projecting loan portfolio performance, current employment statistics and longer term trends are likely to be primary considerations for most banks and credit unions as they incorporate forward-looking economic factors in their ALLL estimations under the CECL accounting standard. 

How can lenders consider economic factors in estimating their reserves?

Under the new accounting standard, CECL, financial institutions will be required to consider economic factors in estimating their reserves. The MST Virtual Economist is an efficient, automated way to evaluate qualitative economic factors and project their impact on the institution’s loss rate, find new variables that impact the loss rate and determine the relevance of the economic factors you are already using to make qualitative adjustments. Click here for more information or to schedule a demonstration.

Tom will be presenting an Economic Outlook session at the 2018 National CECL Conference, May 23-25, San Antonio, Texas. Join us there. Register through April 24.

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