The pace we've come to expect.
FOR the second month in a row, America’s labour market has disappointed, once again raising questions about whether the economic recovery is truly entrenched. Nonfarm payrolls rose just 115,000 in April from March. While the unemployment rate dipped to 8.1%, the lowest since early 2009, from 8.2%, it did so for the wrong reason: the labour force (those working or looking for work) shrank by 342,000.
Private payrolls rose 130,000, but government payrolls shrank, something of a setback because the state and local government austerity that had created such a drag in the past two years had shown signs of easing this year. However, manufacturing payrolls did rise again, suggesting that the industrial sector, and exports in particular, remain a bright spot. Retail employment also recovered, suggesting the recent rise in petrol prices to around $4 a gallon has yet to take a big bite out of the consumer.
One of the most troubling aspects of this report is that the shrinkage of the labour force means that just 63.6% of working-age adults are now actively engaged in work or looking for work. That's the lowest participation rate in decades. Part of this may be discouraged workers giving up the job hunt; the so-called "underemployment rate", or U-6 rate to data wonks, held steady at 14.5% in April. But this rate has actually fallen faster than the overall unemployment rate since September, so the story here is more fundamental than lousy job prospects: it's a troubling sign of the slowing potential growth of the economy.
Now for the positive (such as it is) side. People will wonder if the economy is about to stall, much as it did in the second quarter of last year and the year before. I don't think so. The report is mostly disappointing because it is the second month in a row of sub-200,000 job growth. On the positive side, the previous two months’ employment were revised up a cumulative 53,000. And importantly, other data on the economy shows no signs of a sudden dropoff in activity; unemployment insurance claims dropped last week, factory purchasing managers’ activity picked up in April, car sales remained strong that month, and the stock market is largely holding its strong year-to-date gains. Most important, it is hard to find a fundamental reason for such a dip: the rise in petrol prices has halted, and was never as severe as last year’s; the European crisis has yet to spill over to markets here to the extent it has in previous years; and while the fiscal cliff looms at year end (see article in this week’s issue) it is hard to imagine it having any impact yet.
So we’ll wait for more analysis which I suspect will show the last two months are simply payback for unsustainably strong growth earlier this year due to a warm winter and statistical noise related to seasonal adjustment. The economy is growing, but not strongly enough either to tamp down expectations that the Federal Reserve will have to act again—recall that Ben Bernanke, the chairman, suggested the Fed’s forecast is consistent with 150,000 to 200,000 jobs per month. And it’s certainly not strong enough to reassure the re-election of Barack Obama, whose poll ratings, like the stock market, seem to lurch up and down with each wiggle of the economic data.