After months of overestimating job growth, cautious forecasters have lowered their sights and are looking for only a modest increase in payrolls Friday, when the government delivers its monthly update on employment.
Even if the closely watched report comes in stronger than analysts are willing to predict, it will be far too soon to say whether the economy has reverted to the pattern of robust hiring typically seen in an expansion. And a report that falls short of expectations would be “very disconcerting” to financial markets, said Mark Zandi, chief economist of Economy.com, a forecasting firm.
Economists generally are looking for the Labor Department to report that non-farm payrolls grew by 100,000 in March, according to Thomson Financial. That falls short of the 150,000 typically needed just to keep up with growth in the nation’s work force but would be substantially better than the dismal 21,000 jobs added in February.
The unemployment rate is expected to remain unchanged at 5.6 percent.
Some analysts say there are reasons to believe the March number will be far better than the consensus figure, including the end of a long grocery strike in California and improved weather that might have boosted construction hiring.
“Everything seems to be aligned for a bigger number than the consensus,” said Zandi.
But economists who have gone out on a limb calling for strong job growth in recent months consistently have been proven wrong by government data.
Last month was a prime example. Analysts, looking at encouraging data including a steady decline in new claims for unemployment benefits, expected to see non-farm employers add a net 128,000 jobs for the month.
The disappointing figure of only 21,000 jobs helped trigger a sharp sell-off on the stock market and sent bond market interest rates to their lowest levels since last summer as analysts pushed back their forecast for the Federal Reserve to begin raising interest rates.
And it gave Sen. John Kerry an opening to blame President Bush for a record of “job losses that rip the heart out of our economy.”
In fact the payroll number has begun to assume a larger-than-life significance both for financial markets and for the political prospects of Kerry, the presumed Democratic nominee, and Bush in this year’s presidential campaign. The economy has shed 2.3 million jobs in the past three years, putting Bush in position to be the first president since Hoover to see the economy lose jobs during his administration.
Bond investors are “obsessed” by the jobs figure because of what it suggests about the Fed’s likely actions for the rest of the year, said Mary Ann Hurley, a trader at D.A. Davidson & Co. in Seattle.
“The Federal Reserve has clearly indicated that policy is on hold because of a lack of job creation,” she said. “The bond market has become totally focused on the jobs report.”
Bond prices have barely budged over the past three weeks as traders have moved to the sidelines in anticipation of the March report, she said.
While the economy has come back to life since mid-2003, boosted by tax cuts and the lowest interest rates since the 1950s, the economy has created only 66,000 jobs a month on average over the past six months. Recent data have been mixed, with layoffs declining, employers expressing their intention to add staff but consumers increasingly nervous about job prospects.
Jose Rasco, a senior economist at Merrill Lynch, cited this week’s report on consumer confidence, which showed that 30 percent of those surveyed reported that jobs were “hard to get,” up from 28.9 percent a month earlier. Only 14.7 percent said jobs were “plentiful,” compared with 14.5 percent in the February survey.
“We don’t feel jobs are being created,” he said.
Opinion is sharply divided, but many analysts have come to the conclusion that the unusual combination of steady growth with little hiring seen over the past two years is likely to continue in the coming months.
“We’re really never going to get back to those old days — the secular long-term trend has diminished,” said John Silvia, chief economist for Wachovia Securities. “It’s really a challenge to politicians to be realistic about what public policy can achieve.”
Jim Glassman, senior economist at J.P. Morgan Chase & Co., disagrees, saying current economic growth rates should be sufficient to fuel payroll growth of 200,000 to 300,000 a month, comparable to the last expansion in the mid-1990s.
“All the pieces are in place for job growth to be over 200,000, but of course we haven’t seen it,” he said.