The Blizzard Of '93 Chilled The Numbers But Not The EconomyBy
What a winter. Floods in the West and a blizzard in the East--along with the return of normal snowfalls in most regions--have wreaked havoc across the U.S. And it isn't just nerves that are frayed. The latest data are also showing signs of winter wear and tear.
Some of the numbers look ominous. In March, employment fell for the first time in seven months. Manufacturing and construction seem to be losing momentum, and consumers are more downbeat. At the same time, a jump in hourly wages, following some bad-looking price indexes, suggests that the inflation monster is waking up.
Not to worry, though. The first-quarter data are more jumbled than jarring. In particular, the Blizzard of '93 has clouded much of the March data, from employment to industrial output to retail sales. Because of the storm-related dips and stalls, the economy's picture probably won't come into sharper focus until May, when the April data offer a less fuzzy view.
What is clear right now is that the economy's pace has cooled off from its consumer-led 4.7% annual rate of growth in the fourth quarter. But that was expected even before the bad weather hit. For one thing, consumers lack the financial power to lift their spending at a 5.1% pace for the second quarter in a row.
But that doesn't mean the expansion is in trouble. Despite the March losses, the job data show a trend of slow but steady improvement in the labor markets (chart). That pattern should continue this spring, and more jobs will keep consumer spending on the rise.
Slower growth should allay inflation fears. The credit markets worry that recent jumps in the price indexes are signaling permanently higher inflation. But with economic growth only moderate, with the jobless rate still high, and with plenty of unused capacity, the credit markets are probably seeing ghosts.
DON'T BE SNOWED BY THE MARCH JOB DATA
The best thing the economy has going for it is stronger labor markets. Job growth is far from robust, but it is clearly on a rising trend. Taken by themselves, the March numbers are hardly reassuring, but they should be viewed in the context of the month's weather and the surprising strength in previous months.
Payrolls of nonfarm businesses showed 22,000 fewer workers in March. However, a 59,000 drop in construction employment, reflecting poor weather conditions over much of the country in late February and early March, more than accounted for the decline.
In addition, the East Coast snowstorm occurred in the Labor Dept.'s survey week, resulting in a shorter workweek in many industries. Weekly hours in all industries dipped to 34.3 hours from 34.4 hours in February. That's a clear sign that the storm depressed both industrial output and personal income during the month.
Moreover, the workweek in retail trade plunged by 36 minutes, to 28.2 hours from 28.8 hours. That was the largest monthly decline in 10 years, suggesting that the blizzard also cut into the month's retail activity.
QUALITY JOBS ARE ON THE REBOUND
The most striking feature of the job report, though, was not the March weakness, but the strength in prior months. Contrary to general expectations, Labor did not revise down the huge employment gain it had previously reported for February. Instead, it revised it up slightly to show an increase of 367,000 jobs, the largest advance in four years. In addition, the government boosted the January gain to 113,000 from 44,000.
As a result, the economy generated 153,000 jobs a month, on average, last quarter. That's the best showing since the first quarter of 1990. The pace was only half of that for a typical recovery, but the speedup since mid-1992 means that job markets are firming up.
The economy is also generating better-quality jobs. Last quarter, the number of people working part-time because they felt they could not find full-time work was down from the level in the first quarter of 1992. That means more full-time jobs are opening up. This pattern is in contrast to the previous year, when the rise in people working part-time involuntarily accounted for nearly all of the economy's job growth.
Given the better tone of job growth, along with a sharp rise in hourly earnings in March, the credit markets thought they saw an inflation gremlin in the March job report. Hourly pay jumped 0.5%, to $10.80, but the trend during the past year looks unexciting (chart). Nevertheless, the bond market proceeded to push the yield on 30-year Treasury bonds back up to more than 7%. The rate had dipped to 6.7% in early March.
Wage growth may well have bottomed out for this business cycle, but it shows no signs of accelerating. Besides, even if pay gains do pick up, productivity advances are likely to offset their inflationary potential.
WHITE COLLARS ARE HARD- PRESSED
The main reason job growth continues to lag behind the pace of previous expansions is the ongoing downsizings of large corporations. The urge to be lean and mean has caused permanent job cuts among middle management, even as employment of blue-collar production workers has begun to pick up.
Since this upturn began in March, 1991, production jobs have risen by 823,000. But white-collar payrolls--mostly management and administrative positions--have fallen by 290,000. Even after two years of expansion, nonfarm jobs are still below their prerecession level.
However, the latest data suggest that hiring is beginning to outpace layoffs among white-collar workers. In February and March, white-collar employment increased by 81,000 jobs. That two-month advance was the largest in more than four years. If that trend continues, it would be a strong signal that the employment impact of downsizing is finally waning.
Nowhere is the drag from white-collar hiring more evident than in manufacturing (chart). Since October, blue-collar factory jobs have risen by 114,000, but nonproduction, mostly white-collar jobs have declined by 57,000. Both categories fell in March, for a total drop of 9,000 manufacturing jobs, but that decline was more a result of inclement weather than economic weakness.
Indeed, the Mar. 13-14 blizzard is distorting most of the factory data. A sharp falloff in production in March, for instance, caused the National Association of Purchasing Management's index of business activity to slip to 53.4%, from 55.8% in February (chart). New orders, though, continued to look healthy, suggesting that factories will lift output this spring to meet rising demand.
However, the NAPM also reported a worrisome bit of news from abroad. Its index of export orders fell to 49.9%, the lowest level since the NAPM started to track exports in 1988. If this index remains weak, it may mean that exports will not grow by the 7%-to-8% clip expected for this year. That would deny manufacturers an increasingly important source of customers.
As it is, auto makers may miss out on manufacturing's spring thaw. Sales of U.S.-made cars and light trucks increased to an annual rate of just 11 million in March from 10.2 million in February. While vehicle purchases picked up after the big snowstorm, the March sales rate isn't strong enough to suggest that carmakers will bump up production in the second quarter.
Manufacturing isn't the only sector having weather woes. Winter storms also played havoc with the building industry. Construction spending rose by 0.1% in February, after bad weather contributed to a 0.5% fall in January. March will likely show another decline, as suggested by the month's job loss. As a result, construction probably was a drag on economic growth last quarter.
The first-quarter boost in jobs and incomes, however, means that homebuying should bounce back this spring. So, too, the factory and employment numbers should rebound come April. In fact, the entire economy will look a lot healthier when warmer weather thaws out the data.
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