A disappointing jobs report this morning is sure to renew talk of yet another so-called spring slump in the U.S. economy.
On Friday, the Bureau of Labor Statistics reported that payrolls grew by just 88,000 and that the unemployment rate ticked down to 7.6 percent from 7.7 percent in February. Economists surveyed by Bloomberg had expected payrolls to grow by 190,000 and the unemployment rate to hold at 7.7 percent. Payrolls have seen triple-digit growth since last June, so a return to double digits feels like a big step backward.
Before we get into the phenomenon of spring slumps, a few disclaimers: 1) A single month’s data does not a trend make; 2) This month’s data will be revised next month; and 3) The BLS reports numbers with an error margin of plus or minus 100,000 jobs. So this report could be much better than the headline number—or much worse.
The phenomenon of the “spring slump” began in 2010 and continued in 2011 and 2012. The pattern goes something like this: The year begins with strong data and high hopes, but just as the weather starts looking up, the data take a plunge. The economic picture then proceeds to recover through the late summer and fall. Lather, rinse, repeat. The phenomenon is illustrated in the below chart, and is especially apparent in the loss of jobs in the spring of 2010:
(Source: Bureau of Labor Statistics data)
There are a few theories about why this has happened. One is that the spring slowdowns reflect distortions in the way the government adjusts the data to smooth out regularly occurring events such as weather and holidays. The BLS does this seasonal adjustment to make it easier to compare data each month. The recession could have distorted those calculations, some say. Federal Reserve Board Chairman Ben Bernanke acknowledged that such distortions have been behind previous downturns, but, he told reporters in March, “If we do, in fact, see a slump [in 2013], it would probably be due to real fundamental causes, and then we would obviously have to respond to that.”
By “respond to that,” he means keeping the Fed’s open-ended $85 billion a month bond-buying program, which the central bank has pledged to continue until the labor market improves substantially.
Beyond the seasonal hypothesis, there’s also another possible culprit: The weather. During an unusually warm winter, some activities – particularly in construction – that typically wait until spring happen earlier. The winter of 2012-13 was both warmer and wetter than average, according to the National Oceanic and Atmospheric Administration, and that could be why the year started strong and is now settling in for a slump. But Jim O'Sullivan, chief U.S. economist at High Frequency Economics, wrote in a research note that he doesn't see the weather as a "significant factor" in the March slowdown. "While there is no direct measure of weather effects in payrolls, the not seasonally adjusted household survey series on the number of nonfarm workers with a job who did not work because of bad weather fell 120K (from 237K to 117K), identical to the 120K median decline in the past 10 March reports," he said.
But the numbers do not augur well. Austan Goolsbee, the president's longtime adviser and a former chairman of the Council of Economic Advisers, called the new numbers "a punch to the gut" on CNBC this morning. Labor-force participation is down to its lowest rate since 1979. It's not a spring slump yet, but it's not good either.