The U.S. Department of Labor reported last Thursday morning that initial claims for unemployment insurance reached their highest level since late November, and this weak picture of the labor market pushed European and U.S. stocks to their worst trading week this year. Now, as CNBC’s Matt Clinch reported, analysts are warning that investors should prepare themselves for further trouble in the upcoming months as fiscal tightening begins to affect the economy.
Additionaly, Friday’s Employment Situation compiled by the Bureau of Labor Statistics showed that the U.S. economy created a disappointing 88,000 jobs in March, a sharp decline from the 268,000 jobs added to payrolls in February. Those numbers pushed the unemployment rate down to 7.6 percent from 7.7 percent. But March’s figures were a new low for the recovery. As the month’s participation rate was at its lowest since 1979, according to the statistical bureau, analysts have suggested that the drop was largely due to a drop in labor force participation. Now, concerns are growing that the recovery of the U.S. economy has begun to weaken.
“In the labor market, at least, we see a real risk of even worse news down the line,” Pantheon Macroeconomic Advisors’ chief economist Ian Shepherdson, wrote Monday in a research note seen by CNBC. According to Shepherdson the primary problem is not increasing layoffs but weakening labor demand from smaller firms…
The Institute for Supply Management survey, which reflects factory activity, announced that its reading of manufacturing growth for the month of February expanded, but at more sluggish pace than in the previous month. While growth in the manufacturing sector — which accounts for 12 percent of the economy — remained firmly in expansion territory, smaller firms are below the radar of ISM’s data.
And there are more concerning indicators. The National Federation of Small Business job survey foreshadows movements in business payrolls, and its monthly reports have done a decent job making predictions in recent years, as Shepherdson told the publication. It is this report — which will be released on Tuesday — that could really be a harbinger of trouble ahead, he added.
“While actual job creation appears to be rising, plans to create jobs [in March] took a dive, falling 4 points to a net zero percent of small employers who plan to increase total employment. It seems that the stamina for growth is waning,” said NFIB chief economist William C. Dunkelberg in a press release seen by CNBC.
Looking at the data, Shepherdson commented that some respite in the official numbers could be evident in the official employment numbers before a distinct change becomes apparent.
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