Weak March jobs report sends a shiver through the economy
04/05/2013 7:10 AM
04/05/2013 4:30 PM
A disappointing March jobs report Friday, marked by a sharp slowdown in hiring and shrinking labor force participation, triggered new debate over the strength of the U.S. economic recovery.
Mainstream economists had expected the report to show between 180,000 to 200,000 new jobs to have been created last month, but the Labor Department reported that employment increased by just 88,000 jobs nationwide.
The worse-than-expected numbers, coming off a February when 236,000 jobs were created, sparked an early selloff on Wall Street, with the Dow Jones Industrial Average dropping 145 points, or 1 percent, in the first 90 minutes of trading. But prices recovered during a day of volatile trading to close down only modestly. The Dow finished off 40.86 points to close at 14,565.25, the S&P 500 was off 6.70 points to end at 1,553.28, and the Nasdaq dropped 21.12 points to finish at 3203.86.
Over the past 12 months, hiring had averaged 169,000 new jobs per month – February’s strong number was also revised upward – so the weak March statistic suggested to some a very rapid slowdown that eclipsed a slight decline in the unemployment rate, 0.1 of a percentage point, to 7.6 percent.
Mark Zandi, chief economist for forecaster Moody’s Analytics, said the job market faces still more challenges in the months ahead, citing both government budget cuts and the impact of health care legislation.
“The weak March job gain presages weaker job gains this spring and summer,” he said. “Fallout from the (budget) sequester has yet to hit and adjustment to health care reform by small businesses will weigh on jobs for much of the year.”
That’s likely to be the case, even allowing for the impact in March of unusually cold weather, Zandi said.
“The March number overstates any weakness, cold weather likely hurt retail employment, and there were significant upward revisions to past months, but job growth will throttle back in coming months,” he said.
Not everyone was worried by the poor monthly showing, however. Neil Dutta, head of economic research for Renaissance Macro Research in New York, cautioned that recoveries don’t move in a straight line.
“From 2004 to 2006, when the labor recovery hit its stride in the last expansion, private employment registered a monthly gain of sub-100,000 a total of 11 times. So, roughly one-third of the time in the last labor market recovery, private employment came in below 100,000,” Dutta said. “Yes, that jobs recession was shallower, hence the softer recovery. But let this serve as a reminder that payrolls are volatile. Since 2011, we’ve seen two sub-100 private payroll prints in addition to this one; that’s roughly 11 percent the time."
But many others found the report from the Bureau of Labor Statistics jarring.
“This is an extremely troubling labor market report, given how strongly stocks have rallied, and how much expectations have been lifted with optimism around the consumer and housing. This report this morning calls this whole thesis into question,” said Scott Anderson, chief economist for Bank of the West in San Francisco. “The negative impact of the (budget) sequester is readily apparent in these numbers, and we can expect more economic difficulty and job loss in the months ahead.”
The budget sequester took effect on March 1 and cut $85 billion in federal spending throughout the federal government, with the exception of Congress and its staff. The Defense Department plans furloughs for its civilian labor force in April, and the prospect of another $100 billion in cuts scheduled to begin on Oct. 1 absent a budget deal have dampened spending by businesses and consumers, many of whose jobs depend directly or indirectly on government or government purchasing.
The White House blamed the sequester for Friday’s weak jobs report and warned it is adding uncertainty about the year ahead.
“Now is not the time for Washington to impose more self-inflicted wounds on the economy,” Alan Krueger, head of the White House Council of Economic Advisers, said in a statement.
Krueger noted that Friday’s jobs report was the first since the sequester took effect and that neutral observers have projected that 750,000 fewer jobs will be created because of it, adding that “the recovery was gaining traction before sequestration took effect, these arbitrary and unnecessary cuts to government services will be a headwind in the months to come, and will cut key investments in the nation’s future competitiveness.”
Republicans saw it differently.
“The president’s policies continue to make it harder for Americans to find work. Hundreds of thousands fled the workforce last month and unemployment remains far above what the Obama administration promised when it enacted its ‘stimulus’ spending plan,” House Speaker John Boehner, R-Ohio, said in a statement.
Boehner was referring to the Labor Department’s finding that 496,000 people had stopped seeking work in March. That decline, rather than robust hiring, was largely responsible for the small drop in the unemployment rate, which is a comparison of those out of work to the number of those with jobs or looking for one.
Within the numbers, there were some bright spots. Professional and business services, a broad category made up mostly of better-paying white-collar jobs, led all sectors with 51,000 new jobs in March. Within the category, temporary help services, usually a harbinger of future full-time hiring, posted 20,000 new jobs.
The health care sector, which has continued to add workers even in the worst of times, grew by another 23,000 jobs. And the hard-hit construction sector added another 18,000 jobs in a down month, prompting hopes that the moribund housing market is slowly coming back to life.
But manufacturing, which had been a bright spot in late 2011 and early 2012, saw employment shrink by 3,000 jobs last month.
“The sector has added 77,000 net new workers over the past 12 months. Over that time frame, there were 1.9 million nonfarm payroll workers hired, implying that manufacturers created just 4 percent of all of the net new jobs since March 2012,” Chad Moutray, chief economist for the National Association of Manufacturers, wrote in his Shopfloor.org blog. “That really illustrates how uncertainty and weak global demand have impacted a sector that had before last year been providing outsized growth for output and employment.”
Leading the job decliners was the retail sector, which shed about 24,000 jobs, and economists think that extended cold snap last month influenced this number. Government hiring shrunk by another 7,000 jobs in March, a continuation of what’s been a continuous slide since 2011. Federal government hiring fell by 14,000 but it was offset by about 9,000 new state education jobs.
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