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Disappointing Jobs Report May Be Skewed By Data Quirks

Friday's report showing a sharp hiring slowdown in March lends weight to suspicions that a string of positive monthly reports may have been too good to be true.

But the disappointing numbers for March may not be as bad as they seem. The problem, say economists, is that unusual weather and seasonal adjustments may have thrown this winter's data out of whack.

According to the Labor Department's latest monthly survey, employers added just 120,000 jobs in March, well short of the expected pace of more than 200,000 reached in each of the previous three months.

Despite the lackluster gains, the official unemployment rate fell a notch to 8.2 percent in March, the lowest since January 2009, but only because fewer people were looking for work.

The economy has added 858,000 jobs since December and 3.5 million over the past two years. But economists have been paring back their forecasts for economic growth in 2012, and a symptom of what they are seeing may be showing up in the slower pace of hiring.

"Ultimately the job growth number is determined by how the GDP (gross domestic product) grows," said University of Chicago economist Austan Goolsbee, who served as President Barack Obama's chief economic adviser. "We've had three or four very strong months, but those all reflected the uptick in the growth rate. I'm afraid the growth rate is slowing down a bit."

Last month, Federal Reserve Chairman Ben Bernanke cautioned that this winter's surge in hiring was not sustainable without a pickup in spending by businesses and consumers.

The outlook for the job market has been clouded recently by mixed signals. On Thursday, the government reported that the number of Americans seeking unemployment benefits fell last week to a four-year low. Independent surveys show consumers and businesses are more confident and spending more. Production levels at factories are rising. A private survey released Wednesday showed the service sector boosted hiring in March.

But little of that improvement was reflected in Friday's employment data. Temporary help fell 7,500 last month after rising 54,900 in February, and the average workweek fell slightly.

Despite the relatively mild weather, the construction industry shed 7,000 jobs in March, according to the government data. Those numbers helped confirm some economists' suspicions that this winter's jobs reports may have been skewed upward by the formula used to adjust the data for seasonal factors.

Like many economic statistics, the government’s employment data is adjusted to factor out recurring seasonal trends, such as the surge in temporary hiring by retailers and by the postal service during the holiday season. The purpose is to get a better idea of underlying, longer-lasting trends.

The unusual severity of layoffs during the recession of 2007 may have thrown the numbers off course this winter, especially given the unusually mild weather in much of the country. The result is that many economists say the March number may be understating the job market's true strength.

"This (disappointing March data) feels like, to me, seasonals and weather," said Mark Zandi, chief economist with Moody's Analytics. "Retail normally hires 20,000 to 25,000 per month. There's no reason, given everything else we know about retail, why they shouldn't be doing this. They subtracted 35,000 (according to the March data). That's a very long swing."

The dip in the jobless rate from 8.3 percent in February -- and 9.1 percent as recently as August -- extended a welcome trend for the White House. But that trend is unlikely to continue without a substantially stronger pace of job creation. Most economists don't see the jobless rate falling below current levels before the November election.

The job market has already taken center stage in the presidential campaign. Former Massachusetts Gov. Mitt Romney, the likely Republican challenger, blamed the president's policies this week for slow growth and high unemployment. On Friday, he called the latest jobs report "weak and very troubling."

The Obama campaign has said Romney would reinstate policies that led to the recession: lower taxes for the wealthy and less regulation for business. But the president acknowledged Friday that voters aren't happy with the pace of the economic recovery.

‘‘It’s clear to every American that there will still be ups and downs along the way and that we've got a lot more work to do,’’ Obama said during remarks at a White House forum on women and the economy.

If the economy is slowing, policymakers at the Fed face a difficult summer. Five years after one of the worst recessions since the Great Depression, the central bank has embarked on two rounds of massive bond buying to force interest rates to the floor. It's not at all clear whether a third round would have any greater impact.

Fed policymakers are also powerless to offset the current recession sweeping Europe and a slowdown in China's economy.

"(Friday's jobs data are) a reminder that the U.S. recovery is not suddenly going to transform into a spectacular success, particularly not at a time when the rest of the world economy is stumbling," said Paul Ashworth, chief U.S. economist for Capital Economics.


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