Hiring in the United States has slowed to a pace that’s barely fast enough to stay ahead of changes in the working population, dashing hopes the economy was finally on the verge of a robust recovery.
American employers added 115,000 jobs in April, which is roughly the number economists say is necessary to absorb immigrants, graduates and other new entrants into the work force.
It was the weakest result since October and less than half the average gain of 252,000 over three months through February. The Standard & Poor’s 500 index fell 1.6 per cent to 1,369.10, capping its worst week of the year – down 2.4 per cent. The median estimate of Wall Street analysts surveyed before the U.S. Labour Department released its latest jobs survey Friday morning was for an increase of about 160,000.
The report was more highly anticipated than usual because the result could tip the balance in a contested debate on Wall Street and in Washington over the true strength of the U.S. economy.
At the start of the year, there appeared to be reason to be hopeful that after three years of halting to moderate growth, the economy might finally be gaining serious momentum. Non-farm payrolls increased by more than 200,000 in December, January and February, only the third time in a decade that hiring had sustained that pace for at least three consecutive months.
The unemployment rate also was falling rapidly, dropping by more than a percentage point over a span of 15 months. But something was amiss. Gross domestic product increased at an annual rate of 3 per cent in the fourth quarter, a decent pace but not fast enough to explain the steep drop in the unemployment rate. Hiring in March then slumped and economic growth slowed to a pace of 2.2 per cent in the first quarter, fuelling further doubts.
A second consecutive month of weak jobs growth has turned those doubts into a worrisome conclusion: The roaring start to 2012 was a mirage.
“It now appears that jobs have decelerated into line with GDP, rather than GDP accelerating to catch up with jobs,” Nigel Gault, chief U.S. economist at IHS Global Insight, said in an analysis Friday.
After false dawns in 2010 and 2011, investors and politicians badly wanted to believe the better jobs reports showed a strong recovery was taking hold. Equity markets have been buoyant this year, and U.S. President Barack Obama started associating himself with an economic turnaround. The unemployment rate, after all, had dropped to 8.2 per cent in March from 9.8 per cent in November, 2010. The jobless rate fell again in April, to 8.1 per cent.
But many economists refuse to accept the unemployment rate as a true reading of the underlying strength of the U.S. economy.
Several noted the U.S. winter was exceptionally warm, allowing builders to keep working through Christmas and into the New Year. It now appears much of the hiring done in January and February was hiring that would normally have been done in March and April. Construction jobs declined by a combined 6,000 over the past three months after increasing by a combined 44,000 in December and January.
Also troubling was the apparent breakdown in correlation between the unemployment rate and the GDP growth, one of the most trusted relationships in economics. U.S. Federal Reserve Board chairman Ben Bernanke refused to abandon the text books, saying in March that he believed the plunge in the unemployment rate was simply a balancing of an equally rapid surge in joblessness at the start of the financial crisis. It now appears that Mr. Bernanke was right, suggesting the U.S. central bank will stick with its conditional pledge to leave its benchmark interest rate near zero until at least the end of 2014.
The Fed will do so because there simply isn’t enough demand in the economy to convince employers they need to beef up their staffs. Only 58.4 per cent of the adult population had a job in April, compared with about 63 per cent before the recession.
San Francisco-based Thumbtack.com, a company that matches handymen, tutors and other small-scale service providers with potential clients, is illustrative of what the U.S. economy looks like on the ground.
Thumbtack has about 275,000 users and is adding several thousand each month, according to co-founder Sander Daniels. Most of the new users have either lost their jobs, or are attempting to supplement their earnings.
“They have been forced into temporary or freelance work because they lost their regular office job and an annual income,” Mr. Daniels said. “We have accountants by day and DJs by night.”