ADVERTISEMENT

Job growth weakened in September before shutdown

  • Article by: CATHERINE RAMPELL
  • New York Times
  • October 23, 2013 - 9:38 AM

Even before the federal government shutdown and debt ceiling crisis this month, the nation’s economy was lagging and job growth was sluggish. And the recent dysfunction in Congress seems likely to make the situation worse.

The economy added just 148,000 jobs in September, the Labor Department reported Tuesday in a discouraging economic snapshot taken just before a federal shutdown that resulted in hundreds of thousands of furloughs.

That shutdown, which delayed the release of the September employment report by more than two weeks, is expected to weigh on growth when the next monthly job market snapshot is released Nov. 8, a week behind schedule.

“The labor market lost, rather than gained, momentum over the summer, leaving us with less than a desirable cushion just as the government was shuttered in response to political shenanigans,” said Diane Swonk, chief economist at Mesirow Financial.

This year, in a pattern that has been followed almost since the recession ended in 2009, economists have been counting on job growth to pick up speed. That could finally start putting a more substantial share of the 11.3 million idle Americans back to work and make a greater dent in the unemployment rate, which ticked down to 7.2 percent last month.

But yet again, those expectations are being dashed. Experts at the Federal Reserve as well as private forecasters have scaled back their expectations for output growth in recent months, with Fed officials and many economists blaming tighter fiscal policy in large part for the more modest projections.

The relatively weak September numbers, the subsequent fiscal showdown, the lack of available data and the economic distortions created by temporarily closing government offices are all expected to further delay the Fed’s decision to begin scaling back on some of its efforts to stimulate the economy.

Working at opposing ends

While the Federal Reserve has been trying to promote growth, the rest of Washington has largely been working in the opposite direction, analysts said, with Congress creating drags on the economy through resumption of a payroll tax that began in January, the across-the-board budget cuts known as sequestration that began in March, and then the partial government shutdown and debt ceiling crisis in October. The result has been to accelerate a longer-running trend of a shrinking federal workforce — the federal government had in September the lowest number of civilian employees on its payrolls since 1966.

A recent report from forecasting firm Macroeconomic Advisers estimated that government reductions in discretionary spending as a share of the economy since 2010 had pushed the national unemployment rate higher by 0.8 percentage points than it otherwise would have been, the equivalent of 1.2 million absent jobs. Those same spending cuts have also taken an estimated 0.7 percentage points off output growth each year. Those drags are separate from the costs of the shutdown, which are expected to reduce the annualized growth rate of gross domestic product in the fourth quarter by 0.2 to 0.6 percentage points, depending on which estimate is used.

As a result, economists predicted, the economy is expected to advance at roughly a 2 percent pace for the fourth quarter and the full year instead of the 3 percent or so that it might have achieved without those fiscal hurdles to overcome.

The pace of employment growth in September was slower than the average rate over the previous year, which was 185,000 jobs a month. The unemployment rate fell to 7.2 percent, from 7.3 percent the previous month, a change that was not statistically significant. The unemployment rate has fallen by 0.4 percentage point since June, though much of the improvement was because many people have dropped out of the labor force and are no longer counted. The biggest net hiring gains in September were in construction, wholesale trade, and in transportation and warehousing.

Fed expected to delay action

Many economists said they expected the Fed to postpone into next year any move to scale back its major asset purchases, known as quantitative easing, because that action has been predicated on a steadily improving economy. “In light of the moderate tone of the September employment report, we have pushed out our expectation for the first Fed tapering in the pace of asset purchases to March 2014 from December 2013,” economists at Barclays wrote in a note to clients.

It will be months before economists get a snapshot of the jobs market that is untainted by the recent fiscal crisis. If the weak September job growth and October furloughs do not persuade Fed policymakers to delay tapering, complications with incoming economic data caused by the shutdown are expected to.

Furloughed workers who receive back pay, as Congress promised all federal government employees, will be counted as employed in the official payroll jobs report, but contract workers or other affected private sector employees who were laid off without pay will not.

The next “clean” report — that is, a jobs snapshot not affected by the whiplash of a federal government shutdown and reopening — will not come until January, when hiring data for December will be released.

Shortly after that, Janet L. Yellen, President Obama’s pick to succeed Ben Bernanke as Fed chairman when his term ends Jan. 31, is likely to be at the head of the central bank.

She is widely expected to continue Bernanke’s policies.

© 2014 Star Tribune