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Jobs Data Ease Fears of Sharp Slowdown in U.S. Economy Jobs Data Ease Fears of Economic Slowdown in U.S.
(about 14 hours later)
The United States economy created an estimated 165,000 jobs in April, averting fears of a sharp slowdown and pushing the unemployment rate to its lowest level since the end of 2008. Washington may be hitting the brakes, but the private sector is still rolling ahead, helping create nearly 200,000 jobs a month, on average, since the beginning of the year and forcing the overall unemployment rate in April down to its lowest level since the end of 2008.
The latest jobs figures from the Department of Labor paint a brighter picture of the overall economy than other recent data, which had been weaker and prompted economists to warn of a spring swoon for the third year in row. Those worries had been heightened after the March jobs report, which initially showed the economy to have added just 88,000 jobs, much fewer than had been expected. This push-and-pull dynamic was evident in data released Friday by the Labor Department, as private employers added 176,000 people to their payrolls even as the public sector shed an additional 11,000 workers.
On Friday, however, the government sharply revised upward its estimates for job creation in February and March, concluding that the economy actually generated 332,000 jobs in February and 138,000 in March. The unemployment rate, which is based on a separate survey, fell by 0.1 percentage point to 7.5 percent, from 7.6 percent in March. The latest figures painted a somewhat brighter picture of the overall economy than had been expected as the government sharply revised upward its estimate for job creation in the previous two months. Those revisions concluded that the economy generated a robust 332,000 jobs in February, not the 268,000 originally reported, and 138,000 in March, up from 88,000.
“It’s back to normal for this cycle,” said Steve Blitz, chief economist at ITG. “This number is back to the mainstream of what we’ve seen in this recovery.” The news sent the stock market soaring to new highs, with major stock market indexes closing up 1 percent for the day.
Still, Mr. Blitz said, many of the new jobs were in lower-paying sectors like retail and food services. Stores hired 29,000 workers, while the leisure and hospitality sector added 43,000 employees. Hiring for temporary positions also strengthened, as the temporary help sector gained more than 30,000 jobs. Still, at 7.5 percent, a slight drop from last month’s 7.6 percent, the jobless rate remains far higher than it typically would be this far into a recovery. It is also a full percentage point above the level the Federal Reserve has said it wants to see before it will consider raising interest rates from their current levels near zero.
“You’re hiring people, but you’re not generating high-income jobs,” he said. “But work is work. It’s honorable.” As a result, most experts expect the economy to continue to be buffeted by countervailing factors in the months ahead, with business activity and the Fed providing a healthy measure of support for growth even as fiscal austerity in Washington makes a substantial drop in the unemployment rate unlikely.
The stock market reacted strongly to the better-than-expected figures, with the Standard & Poor’s 500 index breaking through the 1,600-point level for the first time, rising almost 1.2 percent by late morning. The Dow Jones industrial average was up over 150 points, or just over 1 percent as well. “The drag from the government sector is quite substantial,” said Gregory Daco, senior principal economist at IHS Global Insight. “Given the fiscal headwinds, the private sector is doing O.K.”
Another positive sign was that the size of the labor force increased, while the total number of unemployed Americans dropped by 83,000 to 11,659,000. What’s more, the ranks of the long-term unemployed, defined as workers who have been out of a job for 27 weeks or more, declined especially sharply, falling by 258,000 to 4.4 million. That’s still far above what’s typical at this stage of a recovery, but it is a marked improvement from past months. The long-term unemployed have been a particular cause of concern for economists in this recovery, because skills degrade the longer a person is out of the work force, and employers are reluctant to hire someone who has not held a job in a while. Despite repeated fears of a double-dip recession, an economy that has endured a spring swoon for three consecutive years and other potential perils, the country’s rate of job creation has been remarkably steady, if subdued. Over the last three years, the economy has added an average of 162,000 jobs a month, within a hairbreadth of April’s pace, at least as initially estimated, of 165,000 new jobs.
The least-educated workers continue to bear the brunt of elevated joblessness, with the unemployment rate for workers who failed to graduate from high school rising to 11.6 percent from 11.1 percent in March. At the other end of the education spectrum, unemployment among people with a college degree or more remained at a low level, rising by a bare 0.1 of a percentage point to 3.9 percent. But experts have been warning that the economy and job creation are likely to slow in the second quarter, largely as a result of fiscal tightening in Washington. Payroll taxes increased in January, and the effect of across-the-board spending cuts mandated by Congress is expected to be felt more broadly in the months ahead.
Employment in the construction sector, which increased at a healthy pace in the first three months of 2013, actually dipped by 6,000 in April. The recovering housing market has been one of the most notable bright spots in the overall economic landscape, and economists will be closely watching to see if higher home prices and increased construction translate into additional jobs in the months ahead. While the private sector has been on the upswing since last summer, cutbacks in government employment continue to prevent a stronger acceleration in the economy, economists said.
At 7.5 percent, overall unemployment now stands at its lowest point since December 2008, when joblessness was rising rapidly after the collapse of Lehman Brothers and the onset of the financial crisis. Unemployment ultimately peaked at 10 percent in October 2009, and there has been a steady, if frustratingly slow, decline since then. The manufacturing sector, which is closely watched as a gauge of broader economic strength, was unchanged in April. Private sector job creation totaled 176,000. “If it weren’t for the government, the economy would be stronger,” said Mr. Daco, citing the spending cuts hitting now, as well as the higher Social Security deductions for all workers and increased income taxes for top earners that began in January.
Economists have been warning that the economy — and job creation — will slow in the second-quarter, largely as a result of fiscal tightening in Washington. Payroll taxes increased in January, and across-the-board spending cuts mandated by Congress went into effect in March, and their impact is expected to be felt more broadly in the months ahead. On the other hand, he said, “If the Fed hadn’t loosened monetary policy, we’d be seeing weaker growth. Both sides are generating opposing forces.”
Indeed, while the private sector has clearly been on the upswing this year, the government continues to represent a drag on job creation, shedding 11,000 jobs during the month. All in all, April’s rate of job creation, which itself is subject to major revision in the months ahead, was still well below the 209,000 jobs added per month in the fourth quarter of 2012 and the 206,000 jobs per month pace in the first quarter of 2013. Even though job growth now looks better, continued strains in the economy and data this week showing inflation over the last 12 months running at a low 1 percent rate suggest that the Fed is not likely to slow its $85 billion in monthly bond purchases intended to stimulate the economy for at least the next few months. On Wednesday, the Fed said it was “prepared to increase or reduce the pace of its purchases,” depending on the outlook for the labor market and inflation.
“In one line: Not bad, especially in the light of beaten-down expectations,” said Ian Shepherdson, chief economist with Pantheon Macroconomic Advisors. “This could have been much worse.”
The White House was quick to highlight Friday’s report, even as it warned of the potential dangers from the fiscal squeeze.The White House was quick to highlight Friday’s report, even as it warned of the potential dangers from the fiscal squeeze.
“While more work remains to be done, today’s employment report provides further evidence that the U.S. economy is continuing to recover from the worst downturn since the Great Depression,” said Alan Krueger, chairman of the Council of Economic Advisers. He urged Congress to replace automatic budget cuts with a more balanced approach. “Now is not the time for Washington to impose self-inflicted wounds on the economy.” “While more work remains to be done, today’s employment report provides further evidence that the U.S. economy is continuing to recover from the worst downturn since the Great Depression,” Alan Krueger, chairman of President Obama’s Council of Economic Advisers, said in a statement. Mr. Krueger urged Congress to replace automatic budget cuts with a more balanced approach. “Now is not the time for Washington to impose self-inflicted wounds on the economy,” he said.
Republicans cautioned against drawing too positive a conclusion from April’s data. “President Obama’s desperate hype-and-blame campaign will try to spin today’s anemic jobs report six ways to Sunday,” said Reince Priebus, chairman of the Republican National Committee. “But the facts remain clear: too many Americans have been unemployed for far too long. For millions, the economy is simply not working.” Republicans cautioned against drawing too positive a conclusion from April’s data. “President Obama’s desperate hype-and-blame campaign will try to spin today’s anemic jobs report six ways to Sunday,” Reince Priebus, chairman of the Republican National Committee, said in a statement. “But the facts remain clear: too many Americans have been unemployed for far too long. For millions, the economy is simply not working.”
As long as the unemployment rate remains above 6.5 percent, the Federal Reserve has promised to keep buying billions of dollars of bonds in an effort to help bolster growth. Despite the positive news Friday, few observers expect the economy to generate enough jobs in the short-term to bring unemployment down to where the Fed might scale back its stimulus efforts. The jobs report provided plenty of fodder for differing views. On the positive side, the size of the labor force increased, while the total number of unemployed Americans dropped by 83,000 to 11,659,000. What’s more, the ranks of the long-term unemployed, defined as workers who have been out of a job for 27 weeks or more, declined especially sharply, falling by 258,000 to 4.4 million. That is still far above what is typical at this stage of a recovery, but it is a marked improvement from past months. The long-term unemployed have been a particular cause of concern for economists in this recovery, because skills degrade the longer a person is out of the work force, and employers are reluctant to hire someone who has not held a job in a while.
Economists also noted that the number of hours worked fell in April, another sign that the economy is having trouble generating enough additional income and jobs to help lift spending. The typical workweek fell to 34.4 hours from 34.6 in March. Average hourly earnings inched up by four cents to $23.87. On the downside, the least-educated workers continue to bear the brunt of elevated joblessness, with the unemployment rate for workers who failed to graduate from high school rising to 11.6 percent from 11.1 percent in March. At the other end of the education spectrum, unemployment among people with a college degree or more remained at a low level, rising by 0.1 of a percentage point to 3.9 percent.
The government could be the wild card in the coming months. Automatic, across-the-board spending cuts officially went into effect in March, and if the mandated spending cuts continue, layoffs could increase. Apart from the job figures, the economy has been showing signs of weakness of late. Several indicators beginning in March have pointed to much slower growth, with everything from retail sales to manufacturing looking soft recently. Employment in the construction sector, which increased at a healthy pace in the first three months of 2013, actually dipped by 6,000 in April. The recovering housing market has been one of the bright spots in the economic landscape, and economists will be closely watching to see if higher home prices and increased construction translate into additional jobs. The manufacturing sector, which is closely watched as a gauge of broader economic strength, was unchanged in April.
Analysts noted that the number of hours worked fell in April, another sign that the economy is having trouble generating enough additional income and jobs to help lift spending. The typical workweek fell to 34.4 hours from 34.6 in March. Average hourly earnings inched up 4 cents to $23.87.
The economy has been showing other signs of weakness of late. Several indicators beginning in March have pointed to much slower growth, with everything from retail sales to manufacturing looking soft recently.
“In one line: Not bad, especially in the light of beaten-down expectations,” said Ian Shepherdson, chief economist with Pantheon Macroeconomic Advisors, after Friday’s report. “This could have been much worse.”