Spring break may be long past, but the economy could long be feeling the hangover from the February and March it had.
After a few months of encouraging job growth, the U.S. economy is crashing hard. Today the Labor Department reported that initial unemployment insurance claims were at a seasonally adjusted 386,000 last week, barely changed from the previous week's 388,000. That's up about 20,000 claims from the February and March figures. And it's not just jobless claims that are discouraging. Three straight monthly job gains of well over 200,000 were followed by a disappointing March jobs figure, with only 120,000 jobs added that month.
It might seem that the U.S. economy just needs to shake it off—that the job market will even out and compensate for the job gains that winter's warm weather seemingly supplied. But there are plenty of other factors at work.
"The bottom line is employment growth will be determined by two things: the growth in demand of production and the growth in productivity," says Gad Levanon, director of macroeconomic research at The Conference Board, a business membership and research association. Neither the outlook for demand nor productivity bodes well for future job growth.
"If you look at GDP or demand, the variables in general are not that encouraging. We're expecting GDP to grow by 2 to 2.5 percent for the remainder of the year, which is still a very moderate growth rate," says Levanon.
Experts, including Fed Chairman Ben Bernanke himself, scratched their heads over the fact that the unemployment rate has plummeted amidst only moderate GDP growth. Levanon says that productivity figures help give an explanation.
"Part of the reason that employment growth was very strong relative to GDP in the last year is that labor productivity was essentially flat," he says. When businesses cut workers, he explains, output per hour for workers soared as firms on shoestring budgets squeezed their workers for more work. Productivity flattened in late 2011, however, potentially signaling that workers were squeezed to the limit, meaning that employers needed more workers.
Now, after recent spates of hiring, that need for more workers may be met, and Levanon adds that new equipment and technology also continue to make businesses more productive without adding more workers.
The outlook for job growth is dim, but it still may be too soon to declare that the jobs recovery is in trouble. The weather likely did have some effect on hiring, and the effect it had on the job market will take time to show. In addition, weekly jobless claims, even when seasonally adjusted, can be a volatile data series, and one discouraging month of job growth doesn't mean a derailed recovery. First quarter GDP estimates and April jobs numbers, both due out in the coming weeks, will paint a better picture of exactly how much the recovery is either tanking or thriving.