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.