Chicken Littles emerge with latest jobs report

As quickly as pos­si­ble peo­ple should move to their home’s storm cel­lar or place them­selves in the bath­tub with a mat­tress on top so as to shield them­selves from the rapidly approach­ing eco­nomic storm. Or so the mes­sage would seem to be, accord­ing to many econ­o­mists, after the Labor Department’s “dis­ap­point­ing” labor mar­ket reports last Fri­day. For­tu­nately, the stock mar­ket was closed for Good Fri­day obser­vances so the ensu­ing panic was stalled for a few days.

Were the two reports really that depress­ing and does it some­how fore­shadow doom and gloom for the remain­der of 2012? While it is cer­tainly pos­si­ble that the eco­nomic sky is falling, these two reports are unlikely to be an indi­ca­tor that the spring is going to be every bit as depress­ing as this past win­ter was uplifting.

In fact, exam­in­ing one of the fig­ures that came out last Fri­day may leave some peo­ple scratch­ing their head as to why any­one would be depressed. Between Feb­ru­ary and March, the nation’s unem­ploy­ment rate fell from 8.3 per­cent to 8.2 per­cent. Of course, as with all eco­nomic data, the devil is in the details. And the details of why the rate fell were respon­si­ble for part of the Chicken Lit­tle syn­drome seiz­ing the hearts and minds of many economists.

Accord­ing to the house­hold sur­vey, both employ­ment and unem­ploy­ment lev­els dropped between Feb­ru­ary and March of this year, with employ­ment off by 31,000 and unem­ploy­ment drop­ping by 133,000 peo­ple. In total, this pro­duced a decline in the civil­ian labor force of 164,000 indi­vid­u­als; pre­sum­ably due to peo­ple drop­ping out of the work force due to the lack of job avail­abil­ity. The sec­ond sur­vey the Labor Depart­ment con­ducts each month, the pay­roll sur­vey, indi­cated that employ­ment lev­els con­tin­ued to rise by 120,000 for the month of March.

Together the two sur­veys sug­gest a very mod­estly per­form­ing labor mar­ket; one which is hardly cre­at­ing huge num­bers of addi­tional jobs, but cer­tainly not one where the bot­tom is falling out of the econ­omy. So, why all of the drama last Friday?

To a fair degree the answer lies in mar­ket expec­ta­tions and the inabil­ity of econ­o­mists and other finan­cial mar­ket ana­lysts to “read the tea leaves” as time pro­gresses and var­i­ous eco­nomic reports are released. Mar­kets were gen­er­ally expect­ing a much more favor­able report, with the unem­ploy­ment rate expected to remain sta­ble or drop slightly — which it did — and the num­ber of pay­roll jobs cre­ated in March com­ing in around 200,000 — which the econ­omy came up far short of producing.

Does this mean another impend­ing reces­sion with the loss of hun­dreds of thou­sands of jobs? Almost cer­tainly, no.

As stated in this col­umn a few weeks ago, some of the eco­nomic num­bers were not pass­ing the “sniff test,” with some sort of sta­tis­ti­cal pay­back in the off­ing in the not-too-distant future. Well that, in my opin­ion, is exactly what the employ­ment reports amount to — sta­tis­ti­cal payback.

Both the Jan­u­ary and Feb­ru­ary labor mar­ket reports were extremely strong despite an eco­nomic growth rate of only about 2 per­cent. While such a com­bi­na­tion is pos­si­ble, due to hor­ri­ble labor pro­duc­tiv­ity results, the more likely expla­na­tion was that the unusu­ally warm win­ter caused the “sea­sonal adjust­ment” process to mal­func­tion and over­es­ti­mate job cre­ation for the year’s first two months. As well, with sea­sonal adjust­ment fac­tors unable to accom­mo­date the atyp­i­cal weather pat­terns, the house­hold sur­vey esti­mates might also be ques­tion­able; mean­ing that the “dis­cour­aged worker” effect sug­gested by the March num­bers may sim­ply be the off­set to absurdly high fig­ures from Jan­u­ary and February.

Should these inter­pre­ta­tions of the fig­ures prove cor­rect, would this mean that April is likely to see resump­tion in employ­ment growth of 200,000-plus jobs? Sadly, no, the pay­back period may be longer than a sin­gle month; with April pos­si­bly exhibit­ing even weaker fig­ures than in March.

But then after that, things will get bet­ter, right? Most prob­a­bly, yes, but not to the point of see­ing the re-emergence of aver­age monthly jobs growth in the 200,000-plus range. As viewed by this ana­lyst, by the late spring and early sum­mer months the weak­ness in other parts of the world — includ­ing China, Europe, the U.K., Aus­tralia, etc. — will begin to have a slow­ing effect on U.S. exports and activ­ity in the man­u­fac­tur­ing sec­tor. But even given this, the U.S. should see jobs growth aver­ag­ing 150,000 to 160,000 per month for the year’s sec­ond half.

Not exactly stel­lar num­bers, but then again, not chicken feed.

Dr. James New­ton serves as chief eco­nomic advi­sor to Com­merce National Bank and is an aux­il­iary fac­ulty mem­ber in eco­nom­ics and sta­tis­tics at OSU-Marion and OSU-Newark. Dr. Newton’s views do not nec­es­sar­ily reflect those of Com­merce National Bank or OSU-Marion/Newark.

Posted by Jim Newton on Apr 10 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.