If one is left twice shy after being once bitten, how long does it take to get over three nips?
Confidence in the U.S. recovery has retreated remarkably quickly this week as a streak of second-tier indicators produced weaker-than-expected readings. Employment indicators compiled by the Institute for Supply Management and payroll processor ADP were below Wall Street estimates. On Thursday, initial claims for U.S. jobless benefits jumped to 385,000 in the final week of March, compared with 357,000 the previous week and a consensus predication of 353,000.
As a result, economists were paring their expectations for the Labour Department's March jobless survey, which is set for release Friday morning. The Wall Street consensus is for a gain in non-farm payrolls of 190,000, according to Royal Bank of Canada, which is a shift from estimates that were comfortably above 200,000 before this week. (Payrolls increased by 236,000 in February.)
"It is a little nerve wracking," conceded Mike Ward of USForex. "Markets have been doing so well up until now. There will be a lot riding on the jobs number [Friday]." Why so jittery? "There's just not that much confidence right now," Mr. Ward said.
Confidence is lacking in because analysts feel as though they've seen this movie before.
Since 2010, the U.S. recovery has teased with strong first-quarter data, only to slip as winter turned to spring. "In each of the past few years, the recovery stalled in the spring," Steven Ricchiuto, chief economist at Mizuho Securities in New York, advised his clients Thursday. "This year, we expect a repeat performance," he said, citing personal doubts about the resurgent housing market, which he thinks is too dependent on large investors that are buying homes and renting them. (The economic multipliers from renting are much weaker than those from buying.)
Mr. Ricchiuto is an unabashed skeptic who enjoys taking shots at the "bulls." It's that Mr. Ricchiuto doubts the recovery is real; he simply wishes the cheerleaders would dull their enthusiasm.
That enthusiasm is based on rough calculations that suggest the U.S. economy grew at an annual rate in the neighbourhood of 3 per cent in the first quarter, which would be a dramatic improvement from the 0.4 per cent pace set in the fourth quarter. But the optimists are shaken easily. Bank of Montreal economists slashed their estimate for U.S. jobs to 155,000 from 220,000 this week.
It's not entirely clear this week's data should have inspired such glumness. The Institute for Supply Management's index of hiring intentions slipped from the previous month, but still signalled growth, and the ADP survey's ability to predict the official jobs number is tenuous.
As for jobless claims, the Labour Department said the Easter holiday affected its ability to make proper seasonal adjustment. Economists at Royal Bank of Scotland noted that a similar surge in claims was reported in the same week in 2002, an identical calendar year. After that 2002 jump, claims eventually settled back into their previous pattern. The RBS analysts said they expect the same thing to happen this time, with the initial weekly claims number falling back to around 350,000 by the end of April.
One final thought on the "springtime lull," courtesy of Douglas Porter, chief economist at BMO Nesbitt Burns in Toronto: it may not exist. Mr. Porter averaged quarterly growth rates and the quarterly increase in private payrolls for 2010-12. He found no obvious pattern, other than the final quarter tended to be stronger than the others.
"The bigger trend may be that expectations for the U.S. economy have been stoked early each year, and it is against these relatively upbeat forecasts that the mundane reality has disappointed each spring," Mr. Porter wrote in a note.