The economy might, but only might, be slowing. In March we added only 126,000 jobs, the lowest increase since December 2013, barely enough to absorb new entrants into the workforce. Almost all measures of the health of the labor market -- the unemployment rate, the number of workers jobless for more than 27 weeks, the number involuntarily working short hours or too discouraged to continue looking for a job -- remain more or less stuck at present levels. Some analysts say this proves the economy is slowing. Quite the contrary say others: the combination of a stable unemployment rate (5.5%) and an up-creep in wages (+0.3% in March) indicates that we have reached full employment, a situation in which the market has absorbed all those ready, willing and able to work, and job growth therefor creates upward pressure on wages. The Manhattan Institute’s Diana Furchtgott-Roth notes that the labor market has been tightening over the past year -- a more reasonable period from which to draw conclusions than data for a single month -- forcing companies such as McDonald’s and Walmart to raise wages. That she fears, might be a sign that inflation will take off if the Fed persists in keeping interest rates at abnormally low levels, a view shared by Carnegie-Mellon economics professor Allan Meltzer.
Federal Reserve Board chairwoman Janet Yellen will have to apply more than a dollop of judgment as she sorts through not only the recent jobs data, but the conflicting signals flashing both red for slowing and green for accelerating. Indications that the economy is far from robust are not hard to find. In the fourth quarter of last year, growth slowed to 2.2% from a healthy 5% in the previous quarter, and many expect that when data are published later this month they will show a further slow-down in the current quarter, perhaps to 1% (Barclay’s, J.P. Morgan Chase) or less (Macroeconomic Advisers). The fall in oil prices, a net plus for the economy as a whole, is causing layoffs in the oil industry, with ripple effects on the economies of the oiliest states, among them Texas and North Dakota. The lack of any pick-up in jobs in the manufacturing sector reflects the combined effects of the negative impact on exports of the strong dollar, stagnation in euroland, and the decision of consumers to save rather than spend the solid 0.4% increase in incomes recorded in February.
Battling those tailwinds are some significant headwinds. The auto sector remains healthy, even as its growth slows a bit. Analysts are guessing that low gasoline prices and rising incomes will enable the industry to “move the metal” at a rapid pace, with consumers snapping up between 17 million and 17.5 million cars and light trucks, more than in any year since 2006 -- and at prices that top those recorded last year. Toyota is leading the pack of competitors for the consumers’ dollar, but the bottom lines of all manufacturers are benefitting from the surge in purchases of highly profitable sports-utility vehicles.
The important housing market also seems headed for a good year. Mortgage interest rates remain low, cheaper oil has put billions into consumers’ pockets, and pending home sales -- a barometer of future completed sales -- are at their highest level since June 2013. Of course, if the Fed starts driving mortgage rates significantly higher, and if petrol prices return to levels prevailing before the Saudis started their price war on U.S. frackers, affordability might be hard hit and the housing market adversely affected. But the Fed at most will inch rates up a tiny bit, and the Saudis seem happy to stick to their pricing strategy, especially if (it now seems, when) removal of sanctions on Iran permits the mullahs to start exporting oil, which the Saudis want to see yield as little revenue for their enemy as possible.