Economists are divided over whether April's unusually soft jobs number represents a harmless statistical glitch or portends something ominous: a sinking economy. Economist and long-time Washington-watcher Jim O'Connell says "right now jobs data and GDP data are going in different directions, like an economic scissors with one blade pointing up and one blade pointing down." One month does not a trend make, but read on to understand the economic factors that might affect either employment numbers or productivity figures.  

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Weak Jobs Report: Blip or Omen?

Mon May 9, 2016

The Labor Department on Friday reported that the U.S. economy added only 160,000 jobs in April, below expectations and well short of the prior 12-month average of 232,000 new jobs.

Notwithstanding the slowdown in job growth, the nation’s unemployment rate held steady at a “full employment” level of 5%, due no doubt to a downtick in labor force participation to 62.8% of the civilian noninstitutional population. Some 360,000 fewer people were in the workforce than in March.

Economists are divided over whether the unusually soft jobs number represents a harmless statistical glitch or portends something ominous: a sinking economy. Which is it?

The Bureau of Labor Statistics monthly jobs figure technically is a preliminary estimate and is often revised. The April number could move up or down in the next few months so one needs to be cautious about leaping to conclusions from a single month’s data.

On the other hand, it’s not just the jobs number that’s flashing amber signals. The Labor Department recently reported that in the first quarter the nation’s Gross Domestic Product (GDP) rose at an annual rate of only 0.5%, following subpar growth of 1.4% in the fourth quarter, like much of 2015. Economic growth is clearly slowing.

Similarly, U.S. labor productivity plunged at a 1% annual rate in the first quarter, as hours worked increased much faster than output. Annual productivity growth has barely averaged 1% over the past five years.

In other words, right now jobs data and GDP data are going in different directions, like an economic scissors with one blade pointing up and one blade pointing down.

Based on past experience the April jobs figure is likely just a statistical blip and subsequent monthly reports will show growth of 200,000 or more jobs. If so, the April report is an aberration confidently ignored.

Still, there’s no question the U.S. economy is weakening, particularly in light of strong headwinds from abroad. Several developed as well as developing nations, including Brazil and China, have experienced sharp slowdowns, especially those dependent on commodity exports. The IMF recently revised downward its growth forecast for the U.S. and Europe. And U.S. businesses recently have downshifted on new capital investments.

An uncertain political environment might also be anchoring economic growth in some countries. Brazil would top such a list that might also include China and Russia. Great Britain too is caught up in its own “Brexit” turmoil as pressure grows for it to exit the European Union. To be sure, the U.S. presidential campaign, with insurgent candidates in both parties, contributes to economic as well as political uncertainty.

The best advice may be to keep one eye on the May and June jobs reports and the other eye on subsequent-quarter GDP and productivity data. Economic theory tells us that over the long run a robust jobs market is unsustainable with faltering GDP growth.

Sooner or later, therefore, jobs and GDP data must synchronize, meaning that either GDP will speed up to match jobs growth or the jobs numbers will mirror anemic GDP growth. Put another way, sooner or later the U.S. economic scissors will point in the same direction—up or down; to healthier economic growth or to the “R”-word.