The economy added a meager 120,000 jobs in March, a gain well below market expectations, abruptly breaking the string of three consecutive monthly advances of 200,000 or more. Despite the disappointing nonfarm payrolls, the unemployment rate dipped fractionally in March to 8.2%.
Job creation has cooled considerably since January, which represented the high water mark in job growth since May 2010. Nonetheless, recent job gains are putting a dent, however small, in the unemployment rate.
Today’s result is also an indication that the recent uptick in the pace of job creation may have been illusory. While the markets were encouraged by the recently stronger pace of job growth, the actual rate of job creation may not have quickened to the degree that the data suggests. Healthy skepticism persists about the calculation of seasonal adjustments, which is intended to help paint a more accurate picture of the real trend. In recent months, concerns had been raised that seasonal adjustments had been overstating reported job creation. Today’s report suggests those concerns may have been legitimate.
The atypically moderate winter weather through much of the country boosted spending in the first quarter, and likely provided a real boost to hiring as well. The potential certainly exists that job creation over the next few months could be more limited as seasonal statistical adjustments reverse and the pace of growth falter. We believe that Fed Chairman Ben Bernanke was hinting at this issue recently when he cautioned about the ongoing weakness in the labor market and noted that more robust growth would be needed for the nation’s jobless rate to continue to recede.
While consumer confidence recently swelled to a four-year high, a sustained slowdown in job creation will undoubtedly wear on the national mood. Should higher energy costs also persist over an extended period and income growth remain tepid, consumers will have to adjust their discretionary spending habits in the months ahead. The economy is not out of the woods yet, and today’s jobs report is a poignant reminder that the expansion remains lackluster.
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