May 2, 2013
LIA Monthly Economic Report: Nation's Economy Pauses Unexpectedly
By: Dr. Pearl Kamer
The nation's economy paused unexpectedly in March. Monthly job growth was at its slowest pace since last June. Consumers also pulled back, a sign that higher taxes and anemic job growth have finally dented consumer confidence despite surging home and stock prices. Manufacturing and service activity also slowed.
Employers added only 88,000 payroll jobs in March, much fewer than the 268,000 generated in February and less than half of what economists had expected. Professional and business services, construction, health care and the leisure and hospitality sector continued to add jobs. However, many of the jobs were in relatively low wage industries. For example, employment in food services and drinking places, a low-paying sector within the leisure and hospitality industry, added 262,000 jobs in the past year. Government continued to downsize and the retail sector contracted by 24,000 workers due to increased consumer caution. Federal agencies began to cut contracts with suppliers due to the budget constraints caused by sequestration. This could have a ripple effect leading to more private sector job cuts in coming months.
The nation's unemployment rate dropped to a four-year low of 7.6% in March not because more people found jobs but because almost 500,000 workers dropped out of the labor force. When workers stop looking for work, they are no longer counted as unemployed. The March U.S. labor force participation rate fell to 63.3%, the lowest ratio since 1979. Those under age 25 accounted for almost half the workers who dropped out of the labor force in March. Their labor force participation rate was 60% when the recession started but stands at 55% today. Young people still struggling to find jobs have missed out on early-stage career opportunities, which is likely to depress their lifetime earnings. Prime-age workers between ages 25 and 54 did not fare much better. Their March participation rate was 81.1%, the lowest ratio for this group of workers since 1984. In the past year, unemployed workers in this age group fell by 732,000 but only 166,000 of them found jobs. Presumably many of them simply gave up looking for work. Research has shown that the longer people are out of work, the harder it is for them to find jobs and when they do, they often have to accept lower pay. Some of the long-term unemployed may not return to the workforce just as growing numbers of baby boomers are about to retire. This means that a smaller share of the population will be called upon the support the economy, a recipe for slower economic growth and less wealth creation.
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