Friday, February 23, 2018
News Roundup

Jobs grow and stocks soar

Washington may be hitting the brakes, but the private sector is still rolling ahead, helping create nearly 200,000 jobs a month, on average, since the beginning of the year and dropping the overall unemployment rate in April to its lowest level since the end of 2008.

This push-and-pull dynamic was evident in data released Friday by the Labor Department, as private employers added 176,000 people to their payrolls even as the public sector shed another 11,000 workers. The latest figures painted a somewhat brighter picture of the overall economy than had been expected as the government sharply revised upward its estimate for job creation in the previous two months. Those revisions concluded that the economy generated a robust 332,000 jobs in February, not the 268,000 originally reported, and 138,000 in March, up from 88,000.

The news sent the stock market soaring to new highs. A wave of buying helped the Standard and Poor's 500 index crack the 1,600 mark for the first time. The Dow Jones Industrial Average broke through 15,000, closing at 14,974.

Still, at 7.5 percent, the unemployment rate remains far higher than it typically would be this far into a recovery. It is also a full percentage point above the level where the Federal Reserve has said it wants to see joblessness go before it will consider raising interest rates from their current levels near zero.

As a result, most experts expect the economy to continue to be buffeted by countervailing factors in the months ahead, with business activity and the Fed providing a healthy measure of support for growth even as fiscal austerity in Washington makes a substantial drop in the unemployment rate unlikely.

"The drag from the government sector is quite substantial," said Gregory Daco, senior principal economist at IHS Global Insight. "Given the fiscal headwinds, the private sector is doing okay."

Indeed, despite repeated fears of a double-dip recession and an economy that has endured a spring swoon for three consecutive years and other potential perils, the country's rate of job creation has been remarkably steady, if subdued. Over the past three years, the economy has added an average of 162,000 jobs a month, within a hairbreadth of April's pace, at least as initially estimated, of 165,000 new jobs.

But experts have been warning that the economy — and job creation — are likely to slow in the second quarter, largely as a result of fiscal tightening in Washington. Payroll taxes increased in January, and across-the-board spending cuts mandated by Congress went into effect in March, and their impact is expected to be felt more broadly in the months ahead.

While the private sector has been on the upswing since last summer, cutbacks in government employment continue to prevent a stronger acceleration in the economy, economists said.

"If it weren't for the government, the economy would be stronger," Daco said, citing the spending cuts hitting now, as well as the higher Social Security deductions for all workers and increased income taxes for top earners that began in January.

On the other hand, he said, "If the Fed hasn't loosened monetary policy, we'd be seeing weaker growth. Both sides are generating opposing forces."

Even though job growth now looks better, continued strains in the economy and data this week showing inflation over the past 12 months running at a low 1 percent rate suggest that the Fed is not likely to slow its $85 billion in monthly bond purchases intended to stimulate the economy for at least the next few months. On Wednesday, the Fed said it was "prepared to increase or reduce the pace of its purchases," depending on the outlook for the labor market and inflation.

Employment in the construction sector, which increased at a healthy pace in the first three months of 2013, dipped by 6,000 in April. The recovering housing market has been one of the most notable bright spots in the overall economic landscape, and economists will be closely watching to see whether higher home prices and increased construction translate into additional jobs in the months ahead. The manufacturing sector, which is closely watched as a gauge of broader economic strength, was unchanged in April.

"In one line: Not bad, especially in the light of beaten-down expectations," said Ian Shepherdson, chief economist with Pantheon Macroeconomic Advisors, after Friday's report. "This could have been much worse."

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