New Jobs Creation Near Expectations, but Economy Clearly Is Slowing

We remain on target for a recession in the second half of 2023.

The U.S. Department of Labor Building in Washington on March 26, 2020. Alex Edelman/AFP via Getty Images

Commentary

New jobs created printed at 236,000 on April 7, according to the Establishment Survey, on par with market expectations of 230,000 jobs. The Household Survey printed lower, at 160,000. Net revisions were down 17,000 from January and February.

Both the unemployment rate, at 3.5 percent, and the number of unemployed persons, at 5.8 million, changed little in March. The U6 number was 6.7 percent. The U6 is total unemployed plus all persons marginally attached to the labor force plus total employed part time for economic reasons, as a percent of the civilian labor force, plus all persons marginally attached to the labor force. The Labor Participation Rate increased to 62.6, up from last month and last year, we believe largely as a consequence of pandemic benefits fInally being withdrawn.

Looking at our exclusive chart of jobs created by average weekly wages, you can see that most of the jobs are in the leisure and hospitality sectors and in the heavily government-supported education, health, and social services sector. Jobs were lost in retail, construction, and nondurable goods manufacturing, which are often the earliest signs of a slowing economy.

(Source: The Stuyvesant Square Consultancy, “March Jobs by Average Weekly Wages (Establishment)," 2023)

Our quarterly assessment of average real wages by sector shows that almost all jobs lost ground, in terms  of real wages, after adjusting for annualized inflation. Only those high-skilled, often dangerous, positions in mining and logging, construction, and utilities gained real wage ground.

Average weekly wages for March 2023, annualized and adjusted for 12-month inflation

Other Data

The March ISM Manufacturing Index printed at an abysmal 46.3 on Monday, below market expectations. That is the lowest print since the start of the pandemic, which print was, itself, the lowest print since the financial crisis of 2008–09 and indicates the economy is contracting faster. Wednesday’s release of the ISM Services Index showed growth, but at a slower rate, led by a decline in export services orders.

The Job Opening and Labor Turnover Survey, or JOLTS print, for February was down 632,000, further evidence of a slowdown.

Building permits in February, released March 16, were at a seasonally adjusted annual rate of 1,524,000. This is 13.8 percent above the revised January rate of 1,339,000, but is 17.9 percent below the February 2022 rate of 1,857,000. Privately owned housing starts in February were at a seasonally adjusted annual rate of 1,450,000. This is 9.8 percent above the revised January estimate of 1,321,000, but is 18.4 percent below the February 2022 rate of 1,777,000.

For February, Personal Income and Outlays, released March 31, showed disposable personal income up 0.5 percent in current dollars and 0.2 percent in chained 2012 dollars. Personal income in current dollars was up 0.3 percent.

The IBD/TIPP Economic Optimism Index, released April 4, increased just 1.1 percentage points, to 47.4, and remains pessimistic. (Anything above 50 indicates growth.)

The Federal Reserve’s so-called “dot-plot” prognostications as to the future of the economy were released March 22. They showed a median estimate of GDP growth of 0.4 percent for 2023, 1.2 percent for 2024,  and 1.9 percent for 2025. They also show inflation continuing above the Fed’s inflation target of 2 percent through at least 2025.

Labor productivity continues to disappoint.

Opinion

We continue to abide by our view that that there will be a recession commencing in the third quarter (to be acknowledged sometime in 2024); however, our former belief that the Fed would continue with robust interest-rate increases has changed. We think that the Fed has been chastened by the banking crisis, which was exacerbated by Fed tightening. We believe, moreover, that banks will fortify their balance sheets and be more restrained in their lending, effectively doing the Fed’s tighening for them. (Banks begin to report earnings next week; we'll be watching closely.)

Today’s jobs numbers, which reflect hiring only through the first half of March, will likely be far more restrained next month.  There will be no “soft landing.” There will be a mild recession in the second half that could worsen in 2024, depending on the policy response.

We predict first-quarter 2023 GDP will print at 1 percent. We anticipate second quarter 2023 will print at 0.5 percent. Jobs numbers, which have not printed below expectations in nearly a year, will most likely print below 200,000 new jobs.

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Note: Our commentaries most often tend to be event-driven. They are mostly written from a public policy, economic, or political/geopolitical perspective. Some are written from a management consulting perspective for companies that we believe to be underperforming and include strategies that we would recommend were the companies our clients. Others discuss new management strategies we believe will fail. This approach lends special value to contrarian investors to uncover potential opportunities in companies that are otherwise in a downturn. (Opinions with respect to such companies here, however, assume the company will not change).

The views expressed, including the outcome of future events, are the opinions of the firm and its management only as of  April 7, 2023, and will not be revised for events after this document was submitted to The Epoch Times editors for publication. Statements herein do not represent, and should not be considered to be, investment advice. You should not use this article for that purpose. This article includes forward-looking statements as to future events that may or may not develop as the writer opines. Before making any investment decision you should consult your own investment, business, legal, tax, and financial advisers. We associate with principals of TechnoMetrica, publishers of the TIPP Index on survey work in some elements of our business unrelated to that index.