There’s no doubt about it — the March employment situation report released Friday morning by the Labor Department was a stinker.
While the unemployment rate remained steady at 5.5%, the economy added just 126,000 new jobs last month, roughly half the number economists were expecting. Meanwhile estimates for job growth in the previous two months were revised down by a total of 69,000 — putting the average job growth over the past three months at 197,000.
That’s not a terrible figure all else being equal. But the big question on economists’ minds in recent months has been why employment growth has been so robust when other indicators, like GDP growth, retail sales, and corporate profits have been weak. As Justin Wolfers, economist and Senior Fellow at the Peterson Institute put it on Twitter this morning:
Most economic indicators had slowed since late 2014. Payrolls hadn't. Today we learned that's because jobs numbers were overstating strength
— Justin Wolfers (@JustinWolfers) April 3, 2015
The one bright spot in Friday’s report was data on average hourly earnings, which rose 7 cents per hour, more than double the increase over the month before. That puts wage growth over the past year at 2.1%, which is comfortably above the overall level of inflation.
At the same time, average weekly earnings fell because employers are cutting back on worker’s hours. Average hours worked fell by just 0.1 hours per week, but that was still enough for worker’s weekly pay to take a hit in the aggregate.
It’s never a good idea to place too much stock in one jobs report, but today’s number seem to confirm what other data had been telling us, namely that the economic recovery isn’t as strong today as it was three or six months ago.
At the same time, there remains a strong possibility that weak first quarter data is just a bump in the road. The economy contracted by 2.1% in the first quarter of last year, and employment growth averaged 193,000 per month during that period. But after that dismal first quarter, the economy roared back, growing more than 4% on an annualized basis in the next two quarters, with job growth accelerating along with it.
As economist Gad Levanon of the Conference Board writes in an email:
It is too early to conclude that job growth is slowing down, but it is a possibility. However, at least some of the weakness in the past month may have to do with the long duration of the winter this year. Also, the effects of lower oil prices are also clearly visible in the mining sector.
Cold weather and heavy snow in parts of the northeast could have put a damper on economic activity in the past month. Meanwhile, falling oil prices have led to job losses in the energy sector, but we haven’t yet seen consumers start to spend the savings from lower gas prices.
Most economists aren’t ready to throw in the towel, and continue to see above-trend economic and job growth throughout the remainder of the year. But the possibility that growth this year would beat what we had last year just got a little more remote.