A commenter at Economy Lab this week said Federal Reserve chairman Ben Bernanke has been wrong about everything. Not sure how accurate that statement was earlier in the week, but it's wrong now: the latest U.S. jobs reports shows Mr. Bernanke was correct to be skeptical about the strength of the economy.
Non-farm payroll employment rose 115,000 in April, barely enough to keep up with natural increases in the labour pool and well short of the 160,000 median estimate of Wall Street analysts. The Standard & Poor's 500 Index fell at the opening of trading.
The unemployment rate dropped another notch to 8.1 per cent from 8.2 per cent in March. That's the lowest in more than three years. The March gain in payrolls was revised higher to 154,000 from the previously reported 120,000. (February's increase was changed to 259,000 from 240,000.) The manufacturing industry added jobs again: 16,000 in April, taking the gain in factory employment since the low point in January 2010 to 489,000. Government employment declined by 15,000.
All this is a familiar story – too familiar. The figures are OK; they show the economy is growing. But there are about five million fewer jobs in the United States today than there were at the pre-crisis peak. OK isn't good enough.
At the start of the year, there was reason for hope. Payrolls increased an average 252,000 per month between December and February. But Mr. Bernanke was always skeptical. Everything he knew about economics told him that if the rapid drop in the unemployment rate from 9.8 per cent in November, 2010, was truly a new dawn, then gross domestic product should be growing much faster. He said in March that it was quite likely that the unemployment rate would level off. The April jobs figures suggest he was right.
"The pace of job growth with revisions is actually more consistent with the growth we're seeing in the economy," James Marple, senior economist at Toronto-Dominion Bank in Toronto, said in a research note. The first of three Commerce Department estimates put first-quarter growth at 2.2 per cent annual rate. Significant hiring requires growth closer to 4 per cent. With Europe in recession and the U.S. housing market dormant, that will be hard to achieve. "With those forces in lace, the pace of job growth is likely to come in below the 200K mark over the remainder of the year," Mr. Marple said.
The decline in the unemployment rate in April was due in large part to a 342,000 decrease in the labour force. The labour force participation rate fell to 63.6 per cent, the lowest since 1981. Less than 60 per cent of the U.S.'s adult population is working.
April's hiring figures are disappointing, but only because they dashed hopes that the analysis of Mr. Bernanke and other skeptics was wrong. A slower pace of hiring is built into the Fed's conditional pledge to keep its benchmark lending rate near zero until the end of 2014. The latest labour market data will keep alive talk of a third asset-purchase program, but in all likelihood it would take several more months of sluggish hiring to bring about QE3.
It's starting to look like the big gains at the start of the year were a mirage: the result of an exceptionally warm winter that allowed builders to keep working. The reality is an economy that is basically puttering along at a time when roaring economic growth is needed.
"The economy is not in the process of stalling," said Steven Ricchiuto, chief economist at Mizuho Securities in New York. "The economy has just not been able to gain any momentum."