There’s enough encouraging data, barely, to convince top officials in the Obama administration and the Federal Reserve that the recovery remains intact, despite a range of disappointing news in recent weeks.
Friday’s jobs report contained just enough positive details to allay fears that the economy is at risk of a serious slowdown.
The survey of businesses showed payroll employment growing by 223,000 in April, up from a weak 85,000 in March’s revised numbers. Meanwhile, the survey of households found that employment edged up enough to lower the unemployment rate from 5.5 percent to 5.4 percent, the lowest since May 2008.
Outside of job growth, the economic data has been much less encouraging.
The gross domestic product grew at just a 0.2 percent rate in the first quarter, the Bureau of Economic Analysis reported in its first estimate.
That number may slip into negative territory following this week’s report that the trade deficit for March rose unexpectedly to more than $50 billion. Retail sales, manufacturing and other economic indicators also disappointed throughout the winter.
But the Fed has been able to wave off those disappointments as “transitory,” in its words, attributing them to the harsh winter, the rising dollar or collapsed oil prices — as long as job growth has remained intact.
Friday’s jobs report confirmed that, if only by a small margin.
It is more reassuring when coupled with the news Thursday that first-time claims for unemployment insurance are scraping 15-year lows. If jobless claims stay near that level, “job gains are likely to accelerate more noticeably over the next several months,” Deutsche Bank economists predicted Friday.
White House economists noted Friday that April’s gains meant that the private sector has added 12.3 million jobs over 62 straight months of job growth, a record.
The Federal Reserve, meanwhile, is paying particularly close attention to the jobs numbers.
Federal Reserve Bank of Atlanta President Dennis Lockhart said Wednesday in a speech in Baton Rouge, La., that “because the [Federal Open Market Committee, the Fed’s monetary policy committee] will likely soon be considering a major policy change, the incoming data over the coming days, weeks, and near-term months must be intensely watched and carefully interpreted.”
Fed members are considering when to move to tighten monetary policy by raising its short-term interest rate from zero for the first time since 2008.
In its April statement, the central bank said that it would raise rates “when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”
The labor market is still far from healthy. The centrist think tank Hamilton Project estimated on Friday that the U.S. remains 3.9 million jobs shy of full recovery from the recession, taking into account unemployed people who have given up on the job hunt.
But the Fed doesn’t need to see full employment, or even close to it, to move rates from the historically extremely low level of zero. Chairwoman Janet Yellen and company have said they just need to be confident that job gains are mounting and that inflation is rising.
“Given the lags in how monetary policy influences the economy, this means the first rate hike will occur based on a forecast,” Federal Reserve Bank of San Francisco President John Williams said Monday.
Inflation has been low, at just 1.3 percent in the latest reading of the gauge preferred by the Fed. But Yellen made clear in March that the top factor she will be watching to see where inflation is headed is job growth.
“A stronger labor market with less labor market slack is one factor that would tend to, certainly for me, increase my confidence that as slack diminishes, that inflation will move up over time,” Yellen said in a press conference.
April’s numbers should do just enough to prevent Fed members from worrying that inflation will fall short of its goals.
Currently, investors expect the Fed to move in the fall, based on bond market prices that didn’t change much Friday after the jobs report was released. “The numbers are not a reason for the Fed not to start raising rates,” economists for First Trust wrote.
