Doubts About Job Market
Washington — For months, the U.S. economy’s strength has been flagging.
Manufacturing slowed. Fewer homes were built. Cheaper gas failed to ignite consumer spending. Yet month after month, employers kept on hiring vigorously.
In March, the economy’s slump finally overtook the job market.
Employers added just 126,000 workers — the fewest since December 2013 — snapping a 12-month streak of gains above 200,000. At the same time, the unemployment rate remained at 5.5 percent.
The slowdown reported Friday by the Labor Department posed a puzzle to economists: Was the tepid job gain a temporary blip due mainly to a harsh winter and an economy adjusting to much lower oil prices? Or did it mark a return to the middling performance that’s defined much of the nearly 6-year-old recovery from the Great Recession?
No one will know for sure until the government’s monthly employment reports later this spring help gauge the direction of the job market. That leaves the U.S. economy — until very recently the envy of other industrialized nations — facing a renewed sense of uncertainty.
“We knew less than we thought we did,” said Tara Sinclair, a George Washington University professor and chief economist at Indeed, the job-posting web site.
The optimistic view is that much of the weakness will pass. An unseasonably cold March followed a brutal winter that slowed construction and other key sectors. A since-resolved dispute at West Coast ports might have briefly disrupted trade.
Last month’s subpar hiring could make the Federal Reserve less likely to start raising interest rates from record lows in June, as some have been anticipating. The Fed might now decide that the economy still needs the benefit of low borrowing costs to generate healthy growth.
Reflecting that sentiment, government bond yields fell Friday. The yield on the 10-year U.S. Treasury note dropped to 1.84 percent from 1.90 percent before the jobs report was released. U.S. stock markets were closed in observance of Good Friday.
Many companies appear to be taking a cautious approach.
“Employers aren’t laying people off,” noted Patrick O’Keefe, director of economic research at the accounting and consulting firm CohnReznick. “What they’ve decided to do is slow down the pace at which they’re hiring until they have more confidence.”
Last month, the manufacturing, building and government sectors all shed workers. Factories cut 1,000, snapping a 19-month hiring streak. Construction jobs also fell by 1,000, the first drop in 15 months. Hiring at restaurants plunged from February. The mining and logging sector, which includes oil drilling, lost 11,000.
Some other categories managed to extend their gains. Health care added 22,000 workers. Professional and business services — a sector that includes lawyers, engineers, accountants and office temps — gained 40,000. Financial services expanded by 8,000, and retailers maintained their 12-month pace by adding 25,900. In addition to reporting sluggish hiring for March, the government revised down its estimate of job gains in February and January by a combined 69,000.
Wage growth remained modest in March as it has for the past six years. Average hourly wages rose 7 cents to $24.86 an hour. That marked a year-over-year pay increase of just 2.1 percent. But because average hours worked fell for the first time in 15 months, Americans actually earned less on average than they did in February.
Many Americans remain out of the labor force, partly because many baby boomers are reaching retirement age. The percentage of Americans either working or looking for work fell in March to 62.7 percent, the lowest such rate since 1978. That trend illustrates that one reason the unemployment rate is low is that many people without jobs are no longer seeking work and so aren’t counted as unemployed.
The Fed signaled last month that it would gradually raise rates from record lows. March’s weak hiring could delay an increase until September or later.
“I think (June) is completely off the table,” said Carl Tannenbaum, chief economist at the financial services company Northern Trust.
Part of the problem is that the cheap oil — which economists say should eventually help consumers — has been a drag on manufacturers. Energy companies have halted orders for pipelines and equipment, hurting sales.
At the same time, manufacturers face pressure because of the strengthening dollar. It has made American-made goods costlier abroad, thereby cutting into exports.
“From our clients’ perspective, they think we raised our prices 25 percent because the American dollar got so much stronger,” said Drew Greenblatt, president of Maryland-based Marlin Steel.
Strong job gains over the past year never quite triggered higher wages or a larger boom in consumer spending. McDonald’s, Wal-Mart, the Gap and other major employers have announced raises for their lowest-paid employees. But those pay raises are staggered and unlikely to fuel faster wage growth. The economy has disproportionately added lower-paying jobs in the retail and restaurant sectors since the economic recovery began in mid-2009. Adding jobs in the lowest-paid industries can suppress average hourly wages, even when employers are rewarding cashiers, waiters and sales clerks with pay bumps.