The US economy starts the year well, job creation picks up, and concerns about sluggish economic growth give way to expectations of a strong recovery … only to be dashed by a mid-year slowdown. This narrative played out both in 2010 and 2011. Friday’s disappointing employment report serves as a cautionary note that America may not have overcome as yet this unsettling pattern; and, the implications would be even more consequential this time around.
Friday’s employment report disappointed on several fronts. After a revised monthly average gain of some 258,000 for non-farm payrolls in the first two months of the year, net job additions in March slumped to just 120,000, well below consensus expectations of 200,000. The average workweek fell by a notable 0.3 hours to 40.7 hours, offsetting a 0.2 per cent rise in average hourly earnings. And, in the separately measured survey, the unemployment rate fell by only 0.1 percentage points to 8.2 per cent despite yet another worrisome decline in labour force participation.
These disappointments partly reflect changing seasonal factors, including the prior impact of this winter’s unusually mild weather. But there is something much larger in play, and the implications go beyond economics; they influence key elements of the political narrative for the upcoming presidential and congressional elections.
Particularly in today’s unusually-fluid global economy, companies’ decisions to hire involve distinct lagging and leading components. Having cut jobs and costs to the bone during the great recession, many companies found themselves understaffed for the business pickup they already experienced over the last few months. They had no choice but to play catch up in hiring. But, where they do have a choice – in hiring for expected future business – they lack conviction despite generally solid profitability and rock-solid balance sheets.
The hesitancy is understandable, particularly given the uncertain outlook for demand. American consumers, as a group, still carry too much debt and have to cope with higher oil prices. The prospects for exports, which have grown markedly, are gradually dimming now that the rest of the world is slowing. Meanwhile, policymakers have yet to find a way to deal properly with a year-end fiscal cliff, the result of Washington’s repeated inability to design coherent fiscal policy.
This demand uncertainty compounds worrisome structural impediments to growth. America is increasingly lagging the advances made by other countries in education (particularly, in maths and science) and worker training. Housing and housing finance are still problematic, inhibiting labour mobility and maintaining a cloud over the largest component of wealth for the average American. And credit remains patchy; it is amply available to those that need it least but still eludes a range of productive investment opportunities in small- and medium-sized companies.
Left unchecked, this combination will aggravate the structural labour problems highlighted by Friday’s data release – be it long-term unemployment (stubbornly stuck at over 5 million), the average time out of work (a worrisome 39.4 weeks), or a joblessness curse that disproportionately hits the young (a stunning 25 per cent unemployment rate for 16-19 year olds) and those with limited educational degrees (a 12.6 per cent unemployment rate for those lacking a high school degree compared to just 4.2 per cent for those with a bachelor degree or higher).
After a period of relative calm, Friday’s employment report should again sound alarm bells in many parts of Washington. The combined risk of an unemployment problem that is increasingly structural in nature and a rate that is bottoming out way too soon is bad news. It is the last thing America and, more broadly, the global economy need, especially at a time when Europe remains fragile.
The hope is that Friday’s report will act as a catalyst for a renewed initiative on the part of congress and the administration to lift the impediments to growth that have been repeatedly identified yet never suitably treated. More likely, however, is that political bickering and dithering may again deliver a depressingly familiar seasonal pattern that undermines the wellbeing of millions and renders the subsequent recovery even more difficult to secure.