THE American jobs data released today will inevitably draw worrisome thoughts of déja vu. In both 2010 and 2011, the economy showed promising signs of growth early on only to see them peter out by summer time. This year, the hope went, would be different: employment rose an average of 246,000 per month in December through February. Economists had expected similar-sized gains in March.
In fact, non-farm employment rose just 120,000, the Bureau of Labor Statistics reported today. The unemployment rate did dip, to 8.2%, a three-year low, from 8.3%. But that was primarily because the labour force shrank, by 164,000 people. The household survey, which is more volatile than the payroll survey, showed the number of people employed falling 31,000 from February. So the unemployment rate fell for the wrong reasons.
Inevitably, this will draw comparisons to both 2010 and 2011. The background is eerily familiar: in the last few weeks, there has been a revival of worries about Europe, just as in 2010, and a sharp rise in oil prices, just as last year. It is troubling that retail trade was the weakest sector, shedding 33,800 jobs after a similar-sized loss in February; that might be evidence of $4 a gallon petrol biting into disposable incomes.
I think it’s premature to say it’s deja vu all over again. First, 120,000, while well below expectations, is still above the trend growth rate of less than 100,000 and better than what was recorded during the air pockets of 2010 and 2011. Second, some of the prior months’ gains were probably artificially bolstered by good weather; private estimates put the effect at as much as 75,000 to 100,000 jobs. While it’s difficult to be certain, some of March’s disappointment was probably payback. Construction, for example, shed 7,000 jobs.
Third, and most important, there is no sign in other data of a sudden deceleration in economic momentum. Weekly claims for unemployment insurance continue to edge lower, the purchasing managers index for manufacturing showed activity accelerated a tad in March (as did the jobs data: factory payrolls rose a healthy 37,000). Nor do the fundamentals look that bad; the rise in petrol prices to date is smaller than last year’s, and the re-eruption of Europe’s sovereign debt crisis is so far on a lesser scale than in either last year or the year before. State and local government austerity is exercising less of a drag; their payrolls were little changed in March.
So at this point the data don’t suggest the economy is about to grind to a halt. But it’s a cautionary reminder that the economy still faces headwinds. The relief that the European Central Bank’s three-year loans have brought to the continent’s financial system has not fully compensated for deepening austerity and bond market stress, especially in Spain. The American consumer remains vulnerable to blows to disposable income. And the supply side of the economy looks sickly: the fact the unemployment rate continues to fall when underlying economic growth is an unimpressive 2.5% is troubling evidence that swaths of the working age population are permanently withdrawing from working life. It is too soon to count out the American economy’s cyclical recovery. But the structural problems linger.