Is the U.S. economy really falling back? Or getting ready to spring forward? Answers to these pressing questions have suddenly taken new urgency after a stunningly soft March employment report.
Before last week’s disappointing jobs numbers, most economists and Wall Street insiders were convinced that a raft of evidence pointing to an economic slowdown mostly reflected temporary setbacks such as harsh weather that would fade in the warmer months. That’s precisely what happened in 2014, after all.
Yet fresh doubts about the spring-revival meme have sprung up after the government last Friday reported a mediocre 126,000 increase in jobs in March, combined with reductions in how many people were hired in the prior two months.
Now the employment data joins a long list of other reports such as retail sales, consumer spending, business investment, exports and manufacturing that reveal an economy suddenly bereft of the wind at its back. Growth in the first three months of the year is expected to slow to 1.6% or worse from 2.2% and 5% in the previous two quarters.
The conventional wisdom, however, rarely if ever changes because of one bad report, and economists are still hesitant to read too much into the latest rash of negative news.
Most continue to argue that a big surge in hiring in 2014 offers a firm enough foundation for stronger growth in the months ahead. Jobs are easier to find, consumers are more confident and many large businesses such as Wal-Mart and McDonald’s are raising wages for their lowest-paid employees — a sure sign labor markets are tightening.
“Don’t throw in the towel on 2015 yet,” said Scott Anderson, chief economist of Bank of West.
A smaller contingent of economists are less optimistic. They don’t see much reason to believe the economy can grow a lot faster and they doubt the weather alone is sufficient to explain the first-quarter wreckage.
Wages continue to muddle along at 2% annual growth, just two-thirds as fast as normal, in a sign the labor market is far from fully healed, they say. The sudden surge in the value of the dollar, along with the plunge in oil prices, have hurt U.S. energy producer and export-driven manufacturers.
In any case, the Federal Reserve now has more reason to stand pat and keep a key interest rate near zero through the end of the summer — and perhaps until the end of the year.
“For the past five years, the economy has continued to underperform, keeping the Fed sidelined,” said Lindsey Piegza, chief economist at Sterne Agee. “We expect a similar scenario this year.”
Neither bulls nor bears, however, will find any support for their views in this week’s slim pickings of economic signposts. The economic calendar includes mostly second-tier reports such as inventory levels, jobless claims and the minutes of the Fed’s last big meeting in March.
After an avalanche of bad news in the March jobs report, Wall Street may just let the ground settle.