Possible reasons abound for disappointing U.S. job growth
The United States added far fewer jobs than expected in March, with payrolls growing by about 88,000 positions after forecasts called for a figure closer to 200,000, a depressing result for an economy that seemed to be on a path back to health. While the unemployment rate fell to 7.6 percent -- a four-year low -- even that accomplishment was tainted, as the decline resulted from unemployed workers giving up the hunt for new jobs.
After strong job growth in the first two months of 2013, Friday's report was a shock to many economists and observers, who went searching for reasons and offered a range of possibilities.
THE SEQUESTER: With severe spending cuts beginning with the onset of March, many economists joined President Barack Obama's administration in pointing to Congress's inaction on the cuts as a factor in March weakness.
The chairman of Obama's White House Council of Economic Advisers, Alan Krueger, put out a forceful statement to that effect.
"It is important to bear in mind that the March household and payroll surveys are the first monthly surveys to look at employment since the beginning of sequestration. While the recovery was gaining traction before sequestration took effect, these arbitrary and unnecessary cuts to government services will be a headwind in the months to come, and will cut key investments in the Nation's future competitiveness," Krueger wrote.
Several economists agreed.
"The trend in payrolls is consistent with our expectation that employment growth will slow somewhat in coming months (due to) the large, and increasing, fiscal drag," Barclays economist Michael Gapen told Reuters.
Bank of America Merrill Lynch economist Michelle Meyer thinks the sequester "likely discouraged hiring in certain sectors," and will likely keep average monthly job growth below 100,000 in the second quarter, she told the Wall Street Journal. Bank of the West economist Scott Anderson called the sequester's effect on March job numbers "readily apparent," and RBC Global Asset Management chief economist Eric Lascelles faulted "trepidation over the sequester."
The problem with this view, however, is that the sequester's effect would hit government jobs the hardest, but that sector -- one of the weakest in the past two years -- improved in March, as a gain of 9,000 jobs in state government helped offset 12,000 lost postal-service jobs. That led some to look at another effect of Congressional inaction from earlier in the year.
THE PAYROLL TAX INCREASE: A decrease in payroll taxes meant to help bolster the economy expired at the beginning of 2013, and the effects of that move likely took a couple of months to take hold, leading to March's fall, Wall Street Journal reporter Sudeep Reddy posited.
The main factor cited in that argument is the loss of retail jobs. While the retail sector had been averaging a gain of 32,000 jobs a month in the past half-year, it lost 24,000 jobs in March, according to Friday's report. That is most likely a result of consumers with less money to spend, the theory goes.
Consumer spending has actually looked pretty good, however, with retail sales gaining 1.1 percent in February, the most recent report available. So if the sequester hasn't had an effect and the payroll tax hike isn't discouraging spending, why aren't companies hiring?
THEY'RE JUST BEING CHEAP: Fears of the effects of the sequester and income tax hike could be keeping some companies from hiring, even though they haven't felt the pain yet.
"Most American companies are still lean and mean," Ethan Harris, co-head of global economics research at Bank of America, told Bloomberg. "They've been very disciplined about controlling their workforce, their spending and investment."
One obvious sign of this is that the number of hours employed Americans worked increased in March, showing that the need for the work is there, even if people aren't being hired for it. The average workweek hit its highest point in a year, though that may not be a bad thing for future hiring.
"Companies ramped up working hours instead of hiring additional people. The fact that labor demand kept rising should bode well for future job gains," UniCredit Research chief U.S. economist Harm Bandholz told Reuters.
IT'S ALL SEASONAL: Observers with strong memories will recall that the U.S. suffered through weak job growth last spring as well, beginning in April. The thought then was that the mild winter of 2011-12 caused better-than-expected job growth during that time; this year, a colder March may have hurt hiring.
"This was the coldest month of March we've had in over a decade," Ameriprise Financial senior economist Russell Price noted to Bloomberg.
Also, January and February numbers were increased in March's report, adding another 61,000 jobs combined to the totals from those two months. With the U.S. now believed to have gained a total of 416,000 jobs in the firs two months of the year, its possible that March is weak because the previous two months were strong.
This theory would bring down the excitement about the earlier numbers, but also mean March's numbers should not cause mass panic.
"We don't think there is enough signal here to conclude the U.S. economy is wobbling. Rather, it appears that the underlying trend has not improved as much as the January-February data suggested," BNP Paribas economist Julia Coronado told Reuters, in what seemed to be the most rational and measured statement of the day.
Stocks recover somewhat during session, but not tech stocks
Wall Street, not known for its measured approach to such surprises, rebounded from extreme losses by the end of the day, holding decreases to less than 0.5 percent in the blue-chip Dow Jones industrial average and Standard & Poor's 500. But tech stocks were punished, with the Nasdaq declining 0.7 percent and the SV150 index of Silicon Valley's largest tech companies falling 1.1 percent on the day.
Hewlett-Packard (HPQ) declined 1.5 percent one day after shaking up its board of directors despite beating back calls for that same move at last month's annual shareholders meeting. Analysts expect the move to be good for HP investors in the long run, however.
Apple closed down 1.1 percent at $423.20 and skirted near its 52-week low of $419, falling as low as $419.68 on the day. Google (down 1.5 percent) continued to struggle in the wake of Facebook's announcement of a new Android app that will take over the homepage of devices running Google's mobile operating system.
Google and Apple also received bad news from a San Jose federal court, where Judge Lucy Koh provided a road map for workers to successfully file a class-action lawsuit against the tech giants for an alleged plot to avoid poaching workers from other tech companies. Other local firms involved in the litigation also fell: Adobe (ADBE) dropped 1.9 percent, Intel (INTC) lost 0.9 percent and Intuit (INTU) declined 0.4 percent.
One of the few sectors to flourish Friday was social networking, as Facebook continued to star with a 1.2 percent increase to $27.39, its highest closing price since March 12. Former close Facebook partner Zynga gained 2.9 percent after naming Klenier Perkins partner John Doerr to its board and announcing that CEO Mark Pincus would receive a $1 salary for 2013 with no cash bonuses. Yelp staged a surprising rally of 8.6 percent to close at $25.70, the company's highest closing price since October; Benzinga credited the dramatic increase to technical reasons, possibly a short squeeze.
Silicon Valley tech stocks
Down: Ruckus, SunPower (SPWRA), Juniper, Cisco (CSCO), Adobe, Advanced Micro Devices, Tesla, NetApp, Google, HP, Netflix (NFLX), Apple, Oracle (ORCL), Yahoo (YHOO), Intel, Workday, Symantec, Gilead, SolarCity
The tech-heavy Nasdaq composite index: Down 21.12, or 0.65 percent, to 3,203.86
The blue chip Dow Jones industrial average: Down 40.86, or 0.28 percent, to 14,565.25
And the widely watched Standard & Poor's 500 index: Down 6.7, or 0.43 percent, to 1,553.28
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.