This column was originally posted at MarketWatch.
Sequester spring is not starting out well.
In a reversal of recent trends, today’s new data from the U.S. Bureau of Labor Statistics show that employers have cut back sharply on hiring. Government cutbacks have already been slowing our nation’s economic growth and are now actively pulling employment downward, but the worst may be yet to come.
The sharp across-the-board cuts in government spending implemented March 1 are only beginning to show their ugly consequences. While it’s too early to know what the full impact will be on the unemployment rate, government spending cuts are already stealing wind from the sails of the recovery.
In March the U.S. economy only added 88,000 new jobs, but the unemployment rate ticked down slightly to 7.6 percent. The employment data for January and February were revised upward by a total of 61,000 jobs, and over the past three months, the economy has added an average of 168,000 jobs per month. At this rate, the United States will get back to full employment in 2020.
As jobs fail to appear fast enough to soak up all those who need a job, many people have given up searching for work. In March the labor force declined by about half a million people, and the labor-force participation rate decreased by 0.2 percentage points to 63.3 percent. Adult men’s labor-force participation (men ages 20 and over) was 72.7 percent in March, hitting the low of August 2012 and lower than any other month since 1948 at the end of World War II.
For those who continue looking for a job, the search remains an arduous process. Among those out of work and searching for a new job, 37.1 percent have been doing so for at least six months, and the typical unemployed worker takes 18.1 weeks to find a new job. When the unemployment rate was 4.6 percent in 2007, just before the start of the Great Recession, it took the typical unemployed worker only 8.5 weeks to find a new job.
Unemployment continues to be higher among those who are young, have less education, are veterans, or are nonwhite. In March the unemployment rate among teens was 24.2 percent, while it was 33.8 percent among African American teens and 28.1 percent among Hispanic teens.
Among those with only a high school diploma, the unemployment rate was 7.6 percent. African Americans and Hispanics had unemployment rates of 13.3 percent and 9.2 percent, respectively, while Iraq and Afghanistan veterans had an unemployment rate of 9.2 percent.
The recovery in housing is also showing up in the labor market. Construction employment rose in March, adding 18,000 new jobs for a total of 162,000 over the past year. Alongside new homes, however, consumers should be out there buying new furniture, garden supplies, and appliances. But employment in retail sales is down in furniture (-1,800), building material and garden supply stores (-10,100), and electronics and appliances (-5,700).
One issue may be that too many new homes are actually being bought by investors and are not owner-occupied. Thus, even though housing is recovering, it isn’t (yet) leading the recovery in jobs as it has in so many prior recoveries.
Even though unemployment is stagnant, the low rate of inflation means that those with jobs are seeing a rise in their real take-home pay, although it’s a small one. Over the past three months, wages rose by an annualized quarterly rate of 2.3 percent, just above the rate of inflation as measured by the Consumer Price Index for All Urban Consumers, or CPI-U, which increased 2 percent over the past 12 months.
Based on Congressional Budget Office estimates, due to the combined effect of the payroll tax increase (800,000 fewer jobs in 2013) and sequestration (750,000 fewer jobs from March–December 2013), the U.S. economy will create 142,000 fewer jobs each month for the rest of the year. In January Congress allowed the payroll tax to revert to its usual level, eliminating the two-year tax holiday, and in March Congress allowed the so-called sequestration to occur, which will cost about 750,000 jobs over 10 months in 2013. Most of these jobs will be lost in the second and third quarters of this year, so we are only now beginning to see the effects. Without austerity, we might have seen a more robust number this month.
About five or six years ago, I had lunch with a good economist friend where we debated what the worst-case outcomes could be from the collapse of the housing bubble. My friend suggested that the worst that could happen would be an L-shaped recovery, one where employment didn’t grow enough to bring on full employment, but where employment grew just enough that policymakers could breathe a sigh of relief that things weren’t actually moving in the wrong direction. For years now, I have hoped that the lunchtime conversation wouldn’t be so prescient. With the sequester’s impacts yet to be felt, however, I wonder if we weren’t too optimistic.
Heather Boushey is Chief Economist at the Center for American Progress.