March jobs report: Will employment growth come to a screeching halt?
The Great American Jobs Machine has been humming along nicely. After a halting jobs recovery in the years after the financial crisis, the U.S. economy has been adding more than 200,000 jobs per month for more than a year now:
Economists expect another strong report, with early estimates ranging from 225,000 new jobs to 290,000 new jobs in March. Those predictions were bolstered by the announcement of a huge drop in new claims for unemployment benefits this week. That figure fell to 268,000 from 288,000 the week before.
But while various jobs-related indicators paint a picture of a robust and even accelerating recovery, other data coming out in the first quarter of 2015 has been anything but encouraging. The Federal Reserve Bank of Atlanta provides an indicator called GDP Now, which aggregates the various data that make up a GDP report in real time. Its latest reading on April 2 estimates that the economy is grew by a measly 0.1% on an annualized basis this quarter, far below consensus estimates:
Furthermore, corporate profits are looking dismal at the start of this year as well. As my colleague Stephen Gandel pointed out recently:
The first quarter is coming to a close, and things are not looking so good. Analysts predict that, on average, earnings at companies in the S&P 500 for the first three months of the year have fallen 5% from a year ago, according to FactSet. That would be the first time profits at the biggest U.S. companies have declined since the third quarter of 2012, and the largest dip since the third quarter of 2009, when profits dropped nearly 16%.
Top it off, poor retail sales numbers in recent months have had economists scratching their heads. While sales continue to fall, Labor Department statistics show employment in that sector continuing to grow. As Neil Dutta, an economist with Renassaince Macro Research, said in a recent research note to clients, “something’s gotta give,” in this dynamic. Either retail sales must start to climb, or retailers will cease hiring new workers.
These statistics have lead some analysts, including Jim Bianco of Bianco Research, to doubt that the economy can continue to add jobs at such a torrid pace. He points out that if the economy is not growing quickly yet employers are adding many new jobs, that must mean that productivity and efficiency are suffering. He writes:
Has the American economic suddenly become inefficient? We doubt it, so maybe some of the data is wrong. Most are inclined to explain away the poor data by pointing to factors such as weather. Maybe the weak data, which constitutes the majority of economic releases, is not wrong though. Perhaps we should be re-examining the one data point that is strong: non-farm payrolls.
One point Bianco may not be considering is the quality of the conflicting data. GDP can be very volatile from quarter to quarter and is subject to many revisions. 2014 was unquestionably a great year for job growth, yet the economy actually shrank by 2.1% in the first quarter of last year. There are many factors that can affect GDP growth from quarter to quarter, but when an employer decides to start hiring, he is making that decision based on his view of the long-term prospects of his business.
The non-farm payroll survey is a particularly reliable economic indicator. It is drawn from a survey of 143,000 employers across the U.S, representing 588,000 worksites, a robust sample size to say the least. With that said, no single statistic can tell us everything we need to know about the economy. If we’re lucky, the weak growth numbers coming in for the first quarter of 2015 will simply mark a repeat of 2014—a negative blip in an otherwise strong year for growth. But we should also be prepared for the possibility that the jobs recovery is about to come to a halt.