Hazy view of US economy emerges ahead of April jobs report
When the government reports Friday on job growth during April, it could help clarify an increasingly nagging question: Just how strong is the US economy?
The picture has grown hazier of late. Employers added only 126,000 jobs in March, ending a yearlong streak of monthly gains above 200,000. For April, economists predict a rebound to 222,500 added jobs.
Yet weaknesses have emerged in reports showing falling worker productivity, a slowdown in exports, modest consumer spending and sluggish overall economic expansion.
Over the past few years, the United States has served as a powerful engine for the world's economy. But on Thursday, the International Monetary Fund predicted that Asian economies would lead global growth in 2015, in part thanks to recoveries in India and Japan.
Since the year began, the US economy has sent signals of both potential strength and potentially debilitating weakness. Lower oil prices have forced cutbacks at energy companies and the manufacturers supplying them. The stronger dollar has squashed export growth and held down corporate profits. Worker pay, a chronic drag on US growth, has yet to rise significantly for many.
Still, there are optimistic signs: Employers are shedding fewer and fewer workers, the government reported Thursday. Home sales surged in March.
Most economists have attributed the barely-there US growth during the January-March quarter mainly to temporary factors: Nasty winter weather, the impacts of cheaper oil and a since-resolved West Coast ports dispute. That theory will be tested by Friday's jobs report. It could either cast the recent slowdown as merely a blip or confirm that a powerful undertow has been depressing growth.
"If we do see that disappointing pace in April, that 100 per cent negates the 'It was weather argument,'" said Lindsey Piegza, chief economist at Sterne Agee.
Recent economic indicators have drawn a muddy picture:
— The four-week average of the number of Americans applying for unemployment benefits fell to 279,500 last week, the lowest level in 15 years, according to the US Labor Department. This figure tends to anticipate stronger hiring, though it's possible that companies facing uncertainty are refraining from layoffs while delaying hiring until they get a better sense of the economy. That argument was bolstered by a private survey released Wednesday by payroll processor ADP. It said businesses added just 169,000 jobs in April, down from 175,000 in March.
— Worker productivity slipped in the first quarter while labor costs surged, the Labor Department said Wednesday. The report marked only the third time in 25 years that productivity has suffered back-to-back quarterly declines. Lower productivity is usually a negative for the economy because it suggests that workers are becoming less efficient.
— The trade deficit widened in March, creating a drag on the nation's gross domestic product. Imports climbed after the West Coast ports dispute was settled. US exports, which have become pricier for foreign buyers because of a stronger dollar, barely nudged up. The trade gap shot up 43 per cent from February, the government said.
— The government's first estimate of US growth during the first quarter was that the economy expanded at a 0.2 per cent annual rate. But because trade deficits subtract from growth, this week's news of a much wider trade gap triggered estimates from many analysts that the economy actually shrank during the January-March quarter. The US economy also shrank during last year's first quarter during a brutal winter. But many employers expected 2015 to produce additional strength because of strong hiring in much of 2014. Instead, growth has fallen well below its 3.6 per cent annual rate in the second half of last year. Lacklustre consumer spending helps explain the deceleration.
— But home sales staged a big comeback in March, a possible sign that more Americans are eager to make expensive purchases. People bought existing homes at an annual pace of 5.19 million, the National Association of Realtors said. Those gains are expected to extend into April based on figures on signed contracts released by the Realtors. This could help spur additional growth in the construction sector as builders seek to meet demand.
The housing gains come as pay raises are starting to benefit some, especially at the lower-paid levels of the workforce. Wal-Mart, the nation's largest employer, last month raised pay for 500,000 workers to US$9 an hour. Even as the GDP numbers have stirred pessimism, other economists foresee an economy gaining speed. They see the 5.5 per cent unemployment rate as beginning to force more employers to start boosting wages, helping to bolster consumer spending and growth.
"The economy is not in bad shape," said Joel Naroff, president of Naroff Economic Advisers. "We're finally switching to the point where its labor instead of management that have growing power in the job market."