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March put an end to a year-long streak of solid U.S. job growth. The Labor Department reported that employers added a net of just 126,000 jobs last month. Hari Sreenivasan talks to Diane Swonk of Mesirow Financial about what’s behind the sluggish growth and whether the report is an anomaly or a sign of a weakening economy.
It's easy to get too caught up in the expectations heading into any jobs report, but, by most measures, this month took experts by surprise.
The overall number of new jobs were much lower than anyone predicted, far below the nearly 270,000 a month that had been the average of the past year. And with other signs of sluggishness of late, it's time to ask if the economy is slowing down, and, if so, why.
Diane Swonk of Mesirow Financial joins us again from Chicago.
So, Diane, those last few months of jobs numbers, were they the norm or were they an outlier?
DIANE SWONK, Mesirow Financial Holding:
They certainly were a disappointment, if anything else.
I think they do reflect the weakness that we saw in the economy in the first quarter. And what's difficult to tease out is how much of a role unusually harsh winter weather, strikes and work stoppages out on the West Coast ports, which affected manufacturing activity, how much did all of that play in these excuses and how much of it is fundamental weakness?
So, let's talk a little bit about some of those reasons that you mentioned.
How about the dollar and the strength of the dollar? That's been a storyline for the last couple of months.
Well, certainly, the dollar is one of the factors, along with weak growth abroad, hitting the manufacturing sector. The bulk of the effect of the dollar though is still ahead of us. And that's what's disturbing about what we're seeing today, is much of the interruptions in manufacturing activity came because we literally had containers get stopped at West Coast ports and parts couldn't make it to manufacturers.
The weakness in the dollar and the inability to price as cheaply in these very weak economies abroad, that's going to be affecting us and growing in momentum, a bigger headwind as we move into the spring, once we finally unload those containers and get the parts going at the manufacturers again.
So, shouldn't the price of oil, the decreasing price of oil and fuel, combat that a little bit? Shouldn't that encourage economic activity here?
Well, that's the operative word, is should.
What we're seeing is, the drag from oil prices, cuts in mining employment, three months in a row of declines in the mining sector, after really we saw increases in the jobs sector and the mining sector slow to almost nothing in the fourth quarter. We saw declines in the first quarter, really punctuated by March.
That's the effect of low oil prices on actual mining activity. The benefits of low oil prices, higher consumer spending, cheaper manufacturing costs, cheaper costs across the board, we have yet to see those benefits. And so we don't know if the consumer is just hibernating with the bad weather or there's hibernation with some trepidation.
We actually saw the saving rate pick up in recent months. And what we'd like to see is that spent, so you get the offset of positive news from lower oil prices as well.
In these reports, there's also the revisions. And the revisions numbers today were down a bit. Is that significant?
It is significant in the sense that much of the revisions we were seeing up until now were to the upside. That meant that the economy had shifted momentum and was adding more jobs than we could count by the time we did our initial cut of the data.
This time around, it's just something turned and we actually now saw fewer jobs than we initially thought. That is not something we'd like to see. We'd like to see it going in the other direction, that we're actually creating new jobs and we're underestimating what we're actually — sort of chasing the curve, rather than now we look behind the curve.
But one of the things that people are also starting to pay to is the information in these reports about wages. What were the signals today?
Well, today, we saw year-over-year wage gains rose 2 — average hourly earnings 2.1 percent from a year ago. That's a slight deceleration from what we saw earlier in the quarter.
We had gotten a little bit of a pop from some states enacting minimum wage laws. We have now got 29 states have a minimum wage above the federal minimum wage. That said, it's not showing much in terms of overall wage gains. And the only real wages people are seeing in terms of income growth out there is coming from plummeting prices at the pump. That's a backdoor increase for all of it, and it's a backdoor increase for the masses. However, as we said earlier, we have yet to see the good news from that.
OK. People are also bracing themselves for an interest rate hike. Do job reports like today's mean that that might be delayed?
I think Chair Yellen is validated in her caution on raising rates. She's been more cautious than many of her colleagues.
She's the chair of the Fed. It's called the Yellen Fed for a reason. And I think she was very validated that the Fed doesn't need to be quick to raise rates. It's not likely to happen in June. And even as they do, they will do so ever so slowly, because they are worried about all the potholes that still lie ahead in the road in front of us.
All right, Diane Swonk of Mesirow Financial, thanks so much for joining us.
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