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Another Stagnant Spring For The Economy?

Last year, the economy experienced an winter of steady although not spectacular growth only to run into headwinds in the spring that caused the economy, along with ob growth, to stagnate significantly.  With Friday’s disappointingly slow GDP report behind us now, there are at least some indications that the same thing could be happening all over again:

WASHINGTON (MarketWatch) — If U.S. growth in the first quarter was a bit of a mirage, the latest jobs report will deliver the proof.

The government reported last Friday that the U.S. grew 2.2% in the first three months of 2012, up sharply from 0.4% in the year-ago quarter. Read more on GDP report.

Yet many economists believe one of the warmest winters on record played a starring role. Business hiring and consumer purchases that would have taken place later in the year occurred in January and February instead. See charts of GDP report.

Similarly, many economists suspect the mild winter boosted hiring from December through February, with job growth averaging 246,000 a month. They believe hiring will pull back in April just like in did in March, when the government reported that just 120,000 jobs were created, based on a preliminary reading.

The jobs report will be released Friday. The latest forecast of economists polled by MarketWatch estimates 165,000 jobs were added in April.

Yelena Shulyatyeva, an economist at BNP Paribas, said the employment gain in April will probably be similar to the increase in March. BNP Paribas forecasts that 125,000 jobs were created last month.

The reason: Companies hired or retained workers during a warm winter and have less need to add employees now.

“Companies that did not fire as many workers as usual do not have to hire as many workers as we go into the spring season,” Shulyatyeva said. “A good example is in construction. Builders did not have to stop working because of the record warm weather.”

If hiring is also slow in April, however, few economists are ready to pronounce that the economy is getting weaker. The prevailing view is that growth was overstated earlier in the year and is being understated now.

“The upshot is that just as the rapid gains in payrolls earlier in the year probably flattered labor market conditions, the smaller rise in March probably didn’t do them justice,” said Paul Dales of Capital Economics, who projects 175,000 jobs were created last month.

Sam Bullard of Wells Fargo said investors should take an average of job growth in the first four months of 2012 and draw their conclusions from that number. In his view, the economy is likely to maintain steady growth in the range of 2% to 2.5% though 2012, with monthly job growth averaging around 175,000.

While that’s a big improvement over last year, hiring at that pace would not be fast enough to sharply reduce the nation’s 8.2% unemployment rate. The U.S. needs to add at least 250,000 jobs a month for a year or two just to recover all the positions lost during the last recession.

One possible sign that April could be the beginning of a rough period ahead came today in the Purchasing Managers report out of Chicago, which showed an unexpected and steep decline in that index to levels unseens since September/October 2009. Additionally, the Dallas Federal Reserve Bank reported that manufacturing in its area of teh country declined markedly in April. While these are both regional indexes, they’re generally taken as a good harbinger of where the economy as a whole is going, and they both suggest that the economy growth we saw in the first three months of the year, as disappointingly slow as it was, appears to be cooling off, which doesn’t bode well at all for job growth over the coming months.

There was one indicator released today that had a mixture of good news an bad news.  The Commerce Department reported today that consumer income had increased by 0.4% in April, slightly better than the 0.3% that analysts were expecting. At the same time, though, that report also showed that consumer spending came in slightly below estimates, suggesting that Americans are less willing to spend than they had been earlier in the year, another factor that could cause economic growth the slow down.

Absent a outside shock like further economic instability in Europe or a Middle East crisis that causes energy prices to skyrocket, it’s unlikely that the economy will be heading into recession any time soon. However, these numbers suggest that Friday’s GDP report was a harbinger of another stagnant spring for the economy, meaning that job growth could end up being quite paltry heading into election season. We’ll get our first indication of that on Friday when the new jobs numbers are released.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. James says:

    Suddenly no one likes austerity

    Like or Dislike: Thumb up 4 Thumb down 0

  2. Dave Schuler says:

    Taking into account the (very low) rate of inflation, real growth is something like .8%.

    Like or Dislike: Thumb up 0 Thumb down 0

  3. al-Ameda says:

    The recovery is tenuous, to be sure.

    And yet, there are many who find the Republican “solution” – Paul Ryan is proposing to begin privatization of Medicare and cut social and education program spending, and at the same time implement a new round of tax cuts – to be just what we need. We’ve just spent 10 years tax-cutting our our way to deficit funding of 2 wars and a supplemental Medicare Prescription program.

    Republicans currently believe in the austerity programs that are afflicting the economies of Greece, Spain, Ireland and Britain.

    Like or Dislike: Thumb up 5 Thumb down 0

  4. Hey Norm says:

    That Libertarian theory of shrinking Government tends to suck when exposed to the real world, eh?
    Reduce Government jobs and the UE number goes up. Who’da thunk it.
    Reduce Government spending and GDP goes down. Who’da thunk it.
    Here’s why growth is slow:
    http://www.epi.org/publication/public-sector-job-losses-unprecedented-drag/
    You want better growth…start asking Republicans to get their heads out of their arses.

    Like or Dislike: Thumb up 5 Thumb down 0

  5. Ben Wolf says:

    @Hey Norm: Public job losses are playing a role in our economic problems, but the primary drag on growth is a massive private sector debt hangover, the same thing that has kept Japan in the doldrums for the last twenty years. The good news for now is that our deficits are considerably larger than those Japan has run and so our corporations and households have been able to repair their balance sheets more quickly. If our politicians actually manage to cut the deficit though, you can count on things turning worse quickly a la Great Britain.

    Like or Dislike: Thumb up 3 Thumb down 0

  6. Tsar Nicholas says:

    “Stagnant” might be optimistic. The Chicago PMI is a leading indicator. So too is the Philly Fed index, which cratered in April. Income growth, on the other hand, at best is a coincident indicator. Also, FYI, a lot of the very recent action on Wall St. has been predicated upon the economy being so lousy over the late-spring and summer that Bernanke will feel compelled to initiate QE3. It’s not necessarily “unlikely” that we’ll experience a recession this calendar year.

    Like or Dislike: Thumb up 0 Thumb down 0

  7. anjin-san says:

    Good article on the state of the economy from The Economist:

    Unmired at last
    America’s recovery is neither robust nor dramatic. But it is real

    http://www.economist.com/node/21550256

    Like or Dislike: Thumb up 1 Thumb down 0

  8. michael reynolds says:

    Would it be rude of me to point out that economists — left, right and center — don’t have any idea what they’re talking about? Every country on earth has economists. Are they all better now? No? Hmmm.

    If we sent doctors into a hundred sick communities and no one got better wouldn’t we guess that maybe the doctors don’t know what they’re doing? If we sent a hundred mechanics to repair a hundred cars and none of the cars started running wouldn’t we wonder about those mechanics?

    How about if I pointed out that the idea that our government — left, right or center — has the ability to direct a 15 trillion dollar economy that is closely linked to the fates of a dozen other major economies over which we have zero control, is silly?

    In fact, if the government were actually capable of directing the economy using the few tools it has now, wouldn’t it be even more capable with more tools? Aren’t we then arguing for central planning?

    The economy is not a machine. It is closer to being a life form. In fact, it’s not an “it” at all, it’s an “us” and does not somehow exist separate and apart from society in general and from all the non-quantifiable influences that affect society as a whole. Substitute “society” or “civilization” for “economy” and most people would quickly see how little we know, how little we can explain, how little detailed quarter-by-quarter control we have.

    Like or Dislike: Thumb up 2 Thumb down 0

  9. Hey Norm says:

    @ Ben…
    The primary drag on growth is a LACK OF DEMAND.
    Period.
    End of story.
    No qualifications.
    There may be other factors…but the primary drag…LACK OF DEMAND.
    A million Private Sector jobs plus the jobs those jobs support would go a long way toward creating demand.

    Like or Dislike: Thumb up 3 Thumb down 0

  10. @Hey Norm:

    Every country on earth has economists. Are they all better now? No? Hmmm.

    “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” — Friedrich Hayek, The Fatal Conceit

    Like or Dislike: Thumb up 1 Thumb down 0

  11. Ben Wolf says:

    @Hey Norm: Lack of aggregate demand is expressed as lack of spending, or more accurately as a rate of saving so high economic performance is impaired. We’re saving so much because the private sector leveraged itself into $50 trillion in debt and is now trying to dig its way out. Until that debt is sufficiently retired aggregate demand won’t return. Government could help accelerate this process by sending regular checks to every American household.

    Like or Dislike: Thumb up 0 Thumb down 0

  12. al-Ameda says:

    @Stormy Dragon:

    “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” — Friedrich Hayek, The Fatal Conceit

    Doesn’t this prove that a top marginal tax rate of zero would eliminate the deficit?

    Like or Dislike: Thumb up 0 Thumb down 0

  13. Hey Norm says:

    @ Ben….I’m just not in favor of sending cash out…it’s inefficient as stimulus, and there is no longer-term investment on which to earn a return on. I don’t need Government money…I have a job.
    Immediately provide aid to states to start rehiring the million or so teachers, firefighters, cops, and dpw workers that have lost their jobs and are not spending any money.
    Then build baby, build.
    Think of the what building the tunnel betwen NYC and Jersey would have done. Immediate white collar and construction jobs. Long-term increased revenue. It’s an investment. An investment Christie was too stupid to make.

    Like or Dislike: Thumb up 1 Thumb down 0

  14. Ben Wolf says:

    @Hey Norm: I’m not suggesting infrastructure spending should not be a part of the solution. What I’m saying is that ultimately it is only viable over the short-to-medium term. Once you reach a certain point additional infrastructure becomes a form of malinvestment, i.e. wasted resources, and large spending programs are always vulnerable to political maneuvering (think Republicans and their austerity fetish).

    A program directed at the consumer and placed under administration by the Fed won’t face those issues and would be a form of permanent stimulus, ensuring wages can rise without relying on corporate america to ride to the rescue (plus we don’t have to listen to them bitch about competitiveness).

    Like or Dislike: Thumb up 0 Thumb down 0

  15. Ben Wolf says:

    Here’s the latest economic report from the BEA:

    The increase in real GDP in the first quarter primarily reflected positive contributions from
    personal consumption expenditures (PCE), exports, private inventory investment, and residential fixed
    investment that were partly offset by negative contributions from federal government spending,
    nonresidential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.
    http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

    Newflash: Trade imbalances are bad, even for the U.S.

    Like or Dislike: Thumb up 0 Thumb down 0

  16. grumpy realist says:

    @Ben Wolf: Precisely. One of the reasons Japan has so little natural coastline left is that the construction industry covered so much of it with concrete.

    Still, I’d rather take my chances with over-constructing rather than under-constructing at present. To hear the Republican/Libertarians talk, you get the feeling they think US infrastructure is built by the Infrastructure Fairy, and if we just sit around and think pretty thoughts about Teh Free Market, the stuff will magically appear.

    Like or Dislike: Thumb up 0 Thumb down 0

  17. anjin-san says:

    From Todays WSJ:

    Manufacturing Report Pushes Up U.S. Stocks
    All 10 of the S&P 500 sectors were up after a better-than-forecast reading on domestic manufacturing.

    After a flat open, stocks jumped after the Institute of Supply Management’s closely watched purchasing managers index, constructed from surveys from more than 300 manufacturing firms, came in better than expected. April’s reading of 54.8 topped forecasts for 52, and was up from March’s 53.4′s reading.

    “It’s an excellent report,” said Jim McDonald, chief investment strategist at Northern Trust.

    http://online.wsj.com/article/SB10001424052702304050304577377430257042486.html?mod=WSJ_hp_LEFTWhatsNewsCollection

    Like or Dislike: Thumb up 0 Thumb down 0

  18. Hey Norm says:

    a little off-topic…but interesting reading

    http://economix.blogs.nytimes.com/2012/05/01/taxes-and-employment/

    Like or Dislike: Thumb up 0 Thumb down 0