March Job Growth MUCH Weaker Than Expected

The U.S. economy added 88,000 jobs in march, according to an initial Bureau of Labor Statistics report, well below analyst expectations and suggesting a highly fragile economic recovery, and raising questions about whether sequestration is already proving to be a major drag on growth one month after it began indiscriminately cutting federal spending.

Though the unemployment rate fell from 7.7 to 7.6 percent, the drop reflects a shrinking work force, instead of a hoped-for consequence of a robust labor market.

The sliver of good news in the report comes in upward revisions to the previous two months reports. The increase in nonfarm payroll employment for January was revised up to 148,000 from 119,000 — an increase of 29,000, and the change for February was revised to 268,000 from 236,000, up 32,000. These revisions are significantly more certain than the initial reports each month, which are frequently off by tens of thousands of jobs. So future upward revisions, if they materialize, could ultimately moot this report.

However, the dramatic contrast between BLS’ estimated job growth in March and consistently strong winter job growth suggests a real downward change.

It’s impossible to identify the reasons for such a pronounced drop with any certainty, but several factors may be contributing.Irrespective of the internal figures in the report, it’s important to note that for three years running now, BLS reports have pointed to impressive growth in winter months followed by a steep drop in spring. That trend could be repeating, and it would suggest a miscalibrated seasonal adjustment formula — the mathematical function the labor department uses to present a clearer picture of the labor market, absent predictable hiring trends throughout the year.

But real forces might be at play as well. The expiration of the payroll tax cut on January 1 reduced worker paychecks in a highly contractionary way, and the report notes that retail trade lost 24,100 jobs this month, after having gained nearly 40,000 jobs in the previous two months combined.

The unusually long winter, likewise, may have delayed spring hiring.

And then there’s sequestration, which is expected to be a drag on private sector hiring broadly, such that it’ll be hard to identify its direct private-sector consequences in the payroll reports. However, it should hit public sector hiring in a much more predictable way, and that impact isn’t visible yet — at least not in this initial report.

The public sector lost a total 7,000 jobs. But Postal Service employment fell by 12,000, which means that federal, state, and local government, absent the postal service, actually added jobs.

That’s not to say the economy can weather the spending cuts. The sequestration order only went out one months ago, and government furloughs are only beginning. If anything, this jobs report presents a warning to lawmakers that the economy won’t be able to absorb sequestration smoothly and that they should turn it off or pay it down in a less abrupt way.

But unless and until Republicans revisit their unwillingness to cut future deficits with both spending cuts and tax increases, it’s hard to see that happening anytime soon.