Weak Jobs Report
This week brings us the two monthly snapshots of employment: today’s ADP data, and Friday’s government report. Unfortunately ADP didn’t get us off to a good start.
According to ADP – the big payroll processing company – the private sector only added about 158,000 jobs in March, the weakest gain since October. For comparison the private sector added 237,000 jobs in February. Most analysts had expected a March increase in the region of 215,000. So there has been a significant and surprising slowdown in hiring.
Why?
There are two general reasons being kicked around:
The post-Sandy surge in construction may have distorted earlier months and hidden a weaker underlying trend than we imagined. Obviously the seasonal adjustment process can take care of some such blips in the data, but often oddities like a hurricane created surge in jobs can still cause the data to move away from a long term or sustainable trend.
The second reason is that the upcoming phase in of Obamacare may have slowed small business hiring drastically. The new health care rules impose significant costs on businesses at certain levels of employment, so it is quite possible that many businesses – small ones in particular – have held back in order not to cross critical thresholds.
I am not convinced by either of these arguments. Or, rather, I think they are not the only determinants of our sluggish employment market.
I still see slow demand growth as the most critical factor holding back employment.
Business is still operating – by and large – below capacity. Employers have managed to meet what rising demand they see by extending work hours and squeezing more productivity from their existing workforce rather than adding to it. Only after each business has exhausted all such ways of growing without adding workers does it then hire. This explains both the decent productivity numbers and the variable ‘stop and go’ nature of employment growth.
Not until we have a much more upbeat demand prospect will business move more aggressively towards hiring.
And, as we all know, economic policy is going in the wrong direction.
The sequester cuts in government spending are beginning to bite and withdraw demand from the economy, and we are still talking – as the upcoming Obama budget will demonstrate – about modest austerity, not stimulus, as our overall budget goal.
Mercifully our policy levers have not been thrown into full blown austerity just yet, but there are those in the Republican party who still entertain such thoughts. Hopefully we can avoid their advice.
Meanwhile we have to wait to see if the government data confirms ADP’s weak statement. Remember that the big difference between the two reports is that the government includes public sector jobs as well. Since we are still reducing the government payroll – as we have been for a long while now – the recent trend has been for the government data to be weaker than that from ADP.
So Friday could be nasty.
Oh well.
