By Michaela Ross
Friday’s employment report is expected to show weaker jobs gains and stagnant wage growth as harsh weather, a stronger dollar and a retracting U.S. energy industry slowed the overall economy.
Economists are predicting 245,000 jobs may be added in March, far below last month’s gain of 295,000, but above the March 2014 gain of 225,000. Over the past 12 months, the labor market has boomed, adding an average of 274,000 jobs a month and pulling the unemployment rate down to 5.5 percent. But this month’s weaker numbers could show a slowdown in growth.
Record-setting cold temperatures and snowfall swept the Northeast and Midwest last month, resulting in a -0.6 percent decline in retail sales in February – weaker than expected. The weather also affected auto sales, which declined for many automakers in March and brought the overall sales growth rate down from 5.3 percent in February to 0.6 percent in March.
A stronger dollar last month also slowed manufacturing growth, as the Institute for Supply Management’s index on factory activity dropped to its lowest level since May 2013: 51.5 last month from February’s read of 52.9
“We see corporate profits not doing as well and the stock market is suffering in part because of the stronger dollar,” said Sung Won Sohn, professor of economics at California State University Channel Islands.
The jobs and wage numbers this month could also be a result of the sharp contraction in the American oil industry.
“The U.S. has become so involved in the energy industry,” said Robert Brusca, chief economist of Fact and Opinion Economics, “And then oil prices fell and there has been a lot of shutting down of those resources. As it turns out, those are some of the highest paying jobs in the economy.”
The loss of higher-paying production jobs as lower-paying job numbers increase reflects a trend in the overall U.S. economic recovery, said Bill Watkins, executive director of the Center for Economic Research and Forecasting at California Lutheran University.
“You have the oil industry laying off lots of people, very well paid people, and those jobs being replaced by Wal-Mart greeters,” Watkins said.
Last month’s jobs report showed weak 0.1 percent wage growth for private sector employees, and wages are not expected to grow more than 0.2 percent for March.
But there are other bright spots in the economy that signal wage growth will increase over the coming months. Initial jobless claims dropped last week to their lowest since spring 2000. The four-week moving average for jobless claims, a more reliable measure than the weekly numbers, reached 285,500 – below the 300,000 mark that most economist consider very healthy.
Several large U.S. employers have also announced voluntary wage increases for 2015, including Wal-Mart, Starbucks and McDonalds.
Monday’s personal income figures also rose 0.5 percent last month, and spending ticked up for the first time this year.
Although oil prices are sending the U.S. energy sector into a tailspin this month, overall lower gas prices are expected to increase consumer spending.
“We think the spending will offset the decline in the oil industry investment, but it may take a while because the oil industry was able to cut back very, very quickly,” Brusca said.
The next question is how Friday’s report will affect the Fed’s timing to raise interest rates. Several months of strong jobs numbers have led economists to predict a June increase. But if March’s figure tumbles on top of already-weak wage gains, an increase could be delayed until the third or fourth quarter this year.
“I don’t see how you can look at this barrage of data coming in when just about everything has been weaker than expected,” Brusca said. “I think the Fed doesn’t really know what to make of it.”