Disappointing April jobs report may reflect global economic slowdown

In April, the International Monetary Fund (IMF) warned the world economy is growing too slowly:

The “increasingly disappointing” world economy is facing the threat of a “synchronised slowdown” and mounting risks including another bout of financial market turmoil and a political backlash against globalization, the International Monetary Fund has warned.

In its semi-annual World Economic Outlook, the IMF  reduced its global growth forecast for 2016 by 0.2 percentage points to 3.2 per cent, downgrading its expectations for a wide range of advanced and emerging economies.

The IMF said the world economy was increasingly vulnerable to “downside risks” including further market turmoil in the wake of this year’s China-led downturn as well as the political consequences of lackluster growth since the 2008 global financial crisis. [EU “austerity” measures were abandoned only last year. European austerity is over.]

“Growth has been too slow for too long,” said Maurice Obstfeld, the IMF’s chief economist, warning of a widespread sense that too many people were being left behind.

Looming on the horizon is the June 23 referendum in Britain to leave the EU (the “Brexit”), which if it passes portends the possible demise of the EU. EU referendum: Europeans in Britain fear Brexit vote. See also, ‘Brexit’ Vote: Why Britain Could Quit E.U. and Why America Cares.

The global economic slowdown and uncertainty may now be impacting the U.S. economy. U.S. economy slows, with GDP growing 0.5% in first quarter:

The U.S. economy grew at its weakest quarterly pace in two years between the months of January and March, government data showed Thursday morning, as consumers and businesses alike showed new caution with their spending.

The nation’s gross domestic product expanded just 0.5 percent on an annualized pace. Businesses cut back on investments with a severity not seen since the financial crisis.

The relatively tepid growth indicates that the economy is still being held back by apprehension and caution — even as global chaos diminishes, employers continue hiring and the stock market recovers from early-year turmoil. Most analysts say that the United States faces little risk of recession, but the economy is stuck in second gear, providing a picture of contradictions for investors and policymakers.

Among those contradictions: Wages are beginning to rise, and cheaper gasoline is providing an extra influx of cash, but most Americans have cut back on consumption since the middle of last year.

The April jobs report released on Friday was less than what economists had projected (but will be revised in coming months). Steven Benen has the April jobs report. Job growth cools a bit in April, but unemployment remains low:

After strong jobs reports in February and March, expectations were that the hot streak would continue into April.

That’s not quite what happened. The Bureau of Labor Statistics reported this morning that the U.S. economy added 160,000 jobs in April, below projections. The overall unemployment rate remained 5.0%, and for the first time in over eight years, we’ve been at or below this level for seven consecutive months.

As for the revisions: February’s job totals were revised down a little, from 245,000 to 233,000, while March’s totals were also revised down a bit, from 215,000 to 208,000. Combined, that’s a loss of 19,000.

All things considered, it’s a discouraging report, though the news wasn’t all bad: this same report pointed to a decent bump in wages, which serves as a nice silver lining.

Over the last 12 months, the overall economy has created 2.69 million new jobs, which is a pretty healthy number. What’s more, March was the 67th consecutive month of positive job growth – the best stretch since 1939 – and the 74th consecutive month in which we’ve seen private-sector job growth, which is the longest on record.

Here’s another chart, this one showing monthly job losses/gains in just the private sector since the start of the Great Recession.

Jared Bernstein adds at the Washington Post, Making sense out of today’s weaker-than-expected jobs (and GDP…and productivity) data:

Here are three not-very-happy numbers: 0.5 percent, -1 percent, and 160,000.

Here are three better numbers: 1.9 percent, 0.6 percent, and 200,000.

The first three numbers are from the most recent GDP report, productivity report, and today’s jobs report. The second set is from the same reports but over a different time horizon. Re the percent changes: In the first case, they’re annualized quarterly changes, meaning how fast GDP, for example, would grow over the next year if it continued to grow at the rate of the last quarter. The jobs number is just a monthly change in national payrolls.

But in the second set, the percent changes are year-over-year and the jobs-gain number is averaged over three months.

So, which set is right?

They’re both correct, but to my mind, the latter set is more accurate because it smooths out statistical noise that comes with “high-frequency” data. High-frequency data are data that get reported within short time frames. The stock market is the best example, as it updates minute-by-minute. Unemployment insurance claims come out weekly, but most of the big economic indicators, like the ones above, are monthly or quarterly. That’s not as high-frequency as the stock indices, but it’s high enough that the data are noisy.

Noise, in this sense, means random variation around the true data signal, and a good way to turn up the signal-to-noise ratio is to extend the time horizon. In fact, if you plot GDP as measured in the first set of data above and GDP as measured in the second set, you get the figure below, which quite clearly shows the smoother, lower-frequency line cutting through the more jagged one.

Same with the jobs data. Taking an average of the past few months boosts the signal as per the underlying trend, which is what you want to look at when you’re trying to figure out where job growth is at.

That doesn’t mean there’s nothing to learn from the higher frequency changes. First, though they’re noisier, they’re also more indicative of turning points. In this regard, the first set of numbers certainly tells a coherent story. If we’re producing less efficiently and growing more slowly, then you might eventually expect slower job growth. It’s just that we can’t assume a real downshift until we see it persist for more months and quarters, at which point it would start to show up as more signal and less noise in the second-set type numbers above.

This economic expansion is about to hit its seventh year, and that actually makes it slightly long in the tooth: The average length of the last three recoveries is about eight years. Moreover, some weaknesses have recently crept into the picture. Though we trade less than other advanced economies, slower global growth and the strong dollar have hurt our exporters’ competitiveness. Falling oil prices have been a double-edged sword, boosting consumers’ real income but dampening the value of exported petroleum products and hurting jobs in mining and extraction. Even with low interest rates, investment has been tepid in this recovery. Finally, as I wrote earlier this week on this page, government dysfunction may be taking a toll on productivity growth. It’s certainly been keeping us from making needed investments in public infrastructure, which would be a three-fer right now, boosting growth, productivity, and jobs. [That would be the GOP “austerity” measures in the GOP budget]

That said, the trend is still a friend, and while I’ll be closely scrutinizing these indicators, for now, the signal is telling a more positive story than the noise.