Here we go again? Another spring is here and suddenly the economic data is looking weak again. Private-sector nonfarm payrolls rose in March by a slim 121,000 on a seasonally adjusted basis. That's roughly half as strong as we've been seeing in recent months. In February, for instance, private job growth was a much stronger 233,000. It's safe to say that Friday's number is a big disappointment and far below what most economists were expecting. Friday's jobs report also raises new concerns that the economy is weaker than it appeared in recent months, giving new strength to the arguments that the warm winter has been artificially juicing the numbers.
The unemployment rate still managed to slip a bit to 8.2% last month from February's 8.3%. But this is meaningless in context with the latest evidence of weak job growth. In any case, it's suddenly a whole new ballgame for analyzing the economic outlook… again.
click to enlarge
One reading of Friday's report is that economic momentum generally is slowing. Indeed, the main reason for the weak jobs report is due to a reversal of fortunes in the services sector, which dominates the labor market in providing jobs. Consider that in February, services jobs rose by a seasonally adjusted 204,000, or roughly in line with the previous two months. But growth in services jobs slowed to a net rise of just 90,000 in March.
If the economy is destined for another slowdown or worse, it's hardly a total surprise, given the ongoing downshift in the annual growth rate of personal income. Yesterday I wondered if ADP's estimate of job growth would suffice to overcome this headwind and the question certainly resonates on a deeper level after Friday's news.
Even so, it's premature to say that economic expansion has run its course. The risk may be higher today, but a stronger argument for what happens next requires more data. Monthly payrolls numbers can and do bounce around a lot, even in far more robust periods of economic growth. March's payrolls update might reflect a temporary bit of statistical noise. One reason for favoring this view is yesterday's weekly update of initial jobless claims, which continue to trend lower. The ongoing fall in new filings for jobless benefits doesn't jibe with Friday's payrolls report, but it'll take time to figure out which series is the superior barometer for what's coming. For the moment, the weekly claims numbers deserve the benefit of the doubt. Why? The claims data is dispensed more frequently, and when you see a trend based on higher quantities of data, well, that’s a stronger signal. Friday's payrolls data, by contrast, is the outlier, at least for now.
Keep in mind too that last year's spring slowdown was preceded by a substantial rise in initial jobless claims in April 2011. History may be about to repeat, but so far there's no sign of trouble in the claims data. Let's see what next Thursday's update tells us.
Meantime, no one can dismiss Friday's payrolls report. The real question is whether we'll see confirmation in the days and weeks ahead for thinking that another spring slowdown is upon us.
“It is obviously disappointing,” says Cliff Waldman, a senior economist at the Manufacturers Alliance for Productivity and Innovation. “This provides some pretty good evidence that part of the strength of the prior two months was probably seasonal.”
Tony Crescenzi, a strategist at Pimco and author of Beyond the Keynesian Endpoint: Crushed by Credit and Deceived by Debt — How to Revive the Global Economy, is also cautious. “We see a lack of sustainability in terms of strong job growth,” he advises via Bloomberg. “This is still not strong enough to create escape velocity, which is to say an economy strong enough to make it on its own without additional monetary stimulus from the Federal Reserve.”