Jobs Numbers disappointing

As is so often the case in our economy, the Federal Reserve considers the Jobs Report one of our most important economic indicators

Keep in mind that the Fed is investing huge sums in longer-term mortgage-backed securities in an effort to keep longer-term interest rates (especially mortgage rates) low…and the Fed is measuring the success of its investments by watching the jobs market, figuring that greater economic vitality will show up in (and include) a sustainably lively jobs market. Federal Reserve Board Chairman Ben Bernanke has made it clear that the current economic stimulus program (Quantitative Easing, version 3) will continue until job formation has improved in such a way that it is clearly sustainable. Until then, the Fed will put its gigantic resources behind keeping rates low.

So we should obviously be watching employment data with care. And with concern: Last Friday’s report regarding March’s employment growth gave us no reason to think that the Fed is going to slow down any time soon. The national economy managed to create only 88,000 new payroll jobs. The unemployment rate declined, but only because fewer people were actively looking for jobs. In economic jargon, the “national work force” shrank. Fewer people looking for jobs meant less of an unemployment rate.

This is dismaying…and a bit confusing. Until the prior week, the numbers of people applying for unemployment insurance seemed to be on a steady downward slide. Fewer applications for unemployment insurance suggest that fewer Americans are unemployed—so analysts were beginning to anticipate better employment figures for March. But the number of unemployment insurance applications jumped at the end of the month—with the 4-week moving average rocketing north. As Bloomberg stated it: “Initial jobless claims for the March 30 week spiked 28,000 to 385,000 for the sharpest weekly increase and the highest level of the year. The 4-week average also showed its largest increase and highest level of the year, up 11,250 to 354,250.” Ouch!

The markets, of course, respond strongly to surprises, so stock indices quickly fell and there was much wailing from analysts who felt betrayed by an unexpected decline in the employment numbers.

Two things to watch: “GDP growth dipped in each of the past three years, only to recover again. It looks like 2013 will repeat that pattern — a strong first quarter, followed by a dropoff.” [That’s Ben White in Politico.] This explanation suggests that the economy simply cannot yet sustain a strong advance. Why? The jury is out.

Perhaps more significantly, we can expect all eyes to be glued to real estate data. It’s been anticipated that real estate would give the economy the boost it needs to keep an overall recovery going strong for the rest of this year. If real estate numbers fall, the markets will react with fear and suspicion. Meanwhile, interest rates will indeed most likely remain low.


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