A spate of conflicting recent economic data leaves the outlook for Friday’s report of April jobs data clear as mud.
“I’ve never seen a more mixed-up bunch of employment indicators. The ones for April are all over the map,” Ed Yardeni, a veteran economic researcher, wrote in an exasperated investor note Thursday. “I’m not sure that Friday’s employment report will fix the employment compass, which is pointing both north and south.”
Mainstream economic forecasters are expecting that non-farm payrolls in April rose by 170,000 or more. But last month they expected job growth in the neighborhood of 200,000, and instead the Labor Department reported a subpar 120,000 new jobs in March.
Since early April, most of the employment data that followed has been underwhelming.
First-time claims for unemployment benefits, an important barometer for the pace of hiring and firing, rose for several weeks. Then on Thursday, the Labor Department reported that claims for the week ending April 28 fell by 27,000 – to 365,000 – a much larger than expected drop and the biggest decline in a year.
That good news was quickly offset by new data Thursday from the Institute for Supply Management, whose closely watched index on services-sector activity softened dramatically. Services account for about two-thirds of U.S. economic activity, so that softening is significant. Still, the index showed economic expansion, but in line with recent retail and manufacturing data that show an economy down-shifting to slower growth.
Adding to the weakening employment picture, the outplacement firm Challenger, Gray & Christmas reported Thursday that in 2012 through the end of April, employers had announced 186,653 job cuts – an increase of 9.8 percent over the same four months of 2011. The biggest reason for doubt came from the ADP National Employment Report, a closely watched gauge of private-sector hiring. The ADP report for April, released on Wednesday, found that private-sector employers added a lukewarm 119,000 new jobs for the month. Friday’s report from the Bureau of Labor Statistics includes government payrolls, which are shrinking. So if the ADP report proves accurate, as if often does, the April employment numbers are likely to be soft.
Further muddying the waters, the Labor Department said Thursday that non-farm productivity slipped to just 0.5 percent in the first three months of 2012 after rising 1.2 percent in the final three months of 2011. That’s a good sign for hiring, since it suggests that companies that got lean and mean in the Great Recession now need to hire if they see an increased demand for their goods and services.
“These estimates will be revised many times over, but the fundamental trend is unmistakable: in the short term, firms cannot squeeze their existing workforce any further,” Erik Johnson, a U.S. economist for forecaster Global Insight, wrote in a note to investors.
Analysts fear the United States is again experiencing a soft spring, as it did the last two years. Last fall, financial markets rebounded and the economy gathered steam in the second half of 2011.
There’s reason to think that might not happen again this year. European debt problems appear to be growing as citizens push back on austerity measures and investors demand higher returns, deepening government debt woes. Europe’s problems are a global concern.
In addition, the United States government itself faces the possibility of plunging off a fiscal cliff late this year or early next year. At the end of this year, Bush-era tax cuts from 2001 and 2003 and a 2-year-old payroll tax holiday are set to expire. If Washington doesn’t change course, some economists warn that could slice a full 3 percentage points of growth off the U.S. economy. That could risk renewed recession, since the economy grew at a subpar annualized rate of 2.2 percent during the first three months of 2012.
With a U.S. presidential race about to go full steam, Washington’s unlikely to act on these matters before late November, creating uncertainty for business and investment.