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In U.S. jobs market, expect worse before it gets better

People wait in line to meet with recruiters during a job fair in Melville, New York, in this file photo.


We're coming off a week in which austerity politics got a very bad name. It's not likely to get much better as we look to the big economic release of this week – Friday's U.S. employment report.

As many economic commentators last week continued to denounce the arithmetically flawed conclusions in the research by Kenneth Rogoff and Carmen Reinhart that had served as the rallying cry for the pro-austerity argument, here-and-now evidence of the damage wrought by deep government spending cuts mounted.

Spain revealed that its unemployment rate topped a horrific 27 per cent in the first quarter, the worst on record. Britain narrowly averted a triple-dip recession. U.S. gross domestic product growth was well below expectations for the first quarter, due chiefly to sharp declines in government spending.

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Witnessing the growing level of public despair over the European Union's three years of budget-slashing policies that have increasingly been blamed for the continent's ongoing economic funk, European Commission President Jose Manuel Barroso acknowledged that austerity "has reached its limits," while the EU's top economic official said more flexibility on debt and deficit targets is needed.

What more could go wrong for the case for austerity? The job numbers, that's what.

In truth, they already have. The belt-tightening in the U.S. government has resulted in an 80,000-job decline in public-sector payrolls over the past six months, even as the private-sector job market posted solid growth; public-sector employment has declined in five of the past six months.

And there's not a lot of reason to expect the trend to change in the coming months; International Monetary Fund data show that U.S. budget cuts, as a percentage of GDP, will be the biggest among the advanced G20 countries this year, dwarfing the cuts in Spain, Italy and Britain.

Canada – which, slightly unusually, won't report its April jobs numbers until a week after the U.S. report – is tightening its federal government spending relatively modestly this year by comparison. Nevertheless, Ottawa's commitment to reducing budget deficits, in the face of sluggish economic growth, is being felt in the labour market.

Public-sector employment has slipped in four of the past five months, by a total of 60,500 jobs – a considerably bigger decline, relative to the size of the labour market, than the United States has experienced. At least Ottawa, unlike Washington, doesn't have the impact of "sequester" package of deep automatic budget cuts (they officially kicked in last month) to increase the downward pressure on its workforce in the coming months.

So what are we looking at for the U.S. jobs numbers? Economists' consensus estimate is for U.S. employment growth of 150,000 in April – up from the discouraging 88,000 posted in March, but still considerably below the average pace of the past six months. And government jobs are once again expected to be a negative, with economists expecting a public-sector drop of about 15,000. And the bulk of the sequester's impact on government employees has only just begun; this could get worse before it gets better.

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More


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