Is April’s Slow/Low Payroll Growth Signaling The New Normal Or A New Recession?

Economists were expecting a relatively weak month for job growth in April, but today’s payrolls report from the Labor Department managed to disappoint the crowd even by the downsized standards of late. Employment in the private sector rose by a thin 130,000 on a seasonally adjusted basis, down from March’s modest 166,000 gain. April’s increase was the lowest since last August. The unemployment rate, surprisingly, managed to slip a bit to 8.1%, but that’s irrelevant given today’s meager gain in the working population.

Most of the job growth last month, what there was of if, came from the services sector, as usual. The cyclically sensitive goods-producing sector eked out a gain of 14,000, but no one will be impressed with that slight increase.

“It’s a pretty sluggish report over all,” Andrew Tilton, a senior economist at Goldman Sachs, tells The New York Times. Julia Coronado, chief economist for North America at BNP Paribas, opines that “the labor market is gradually improving, but I wouldn’t want to call it strong by any stretch. I don’t think this is reassuring for the Fed, though it’s not catastrophic either.”
Meanwhile, government employment continued to decline, shrinking by 15,000 after March’s 12,000 retreat. Some analysts worry that the ongoing contraction in the public-sector workforce is becoming a substantial economic headwind.

As for the trend in private payrolls, today’s update offers no reason for celebration but there’s nothing unusual in today’s report relative to recent history either. Granted, payrolls growth is at the lower end of the range for the past year or so. That may be a sign that the economy is weakening, although it’s not beyond the pale for arguing that the last two months are just statistical noise and that better news is coming. Indeed, yesterday’s large drop in new jobless claims feeds hope on that front.
In any case, analyzing the labor market requires a sober dose of managing expectations these days. It’s crucial to distinguish between an unrealistic outlook that disappoints and recognizing that the economic recovery is mild relative to recoveries in decades past. It’s hard to tell the difference sometimes, but clarity is coming.
“People say the economy is broken,” James Paulsen, chief investment strategist at Wells Capital Management, tells Bloomberg BusinessWeek’s Peter Coy. “It’s not. This is the New Normal. And the New Normal is 25 years old.”