Surprising Labor Weakness in America Prompts Growth Concerns

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The U.S. labor market is getting weaker, with less new jobs for unemployed Americans.

The United States saw 126,000 new jobs in March, far below expectations and well below recent job gains. Economists have cut growth forecasts on the news, with expectation that the U.S. economy saw no growth in the first quarter of 2015. The Federal Reserve has cut its GDP forecast several times in recent months, and the trend may continue as weak job growth and low-income growth combine to keep retail sales and economic activity depressed.

The Bureau of Labor Statistics also revised downward its estimates for new jobs added in January and February, cutting the growth rate by a combined 69,000 jobs. Total employment is above the recession peak, but the labor participation rate has fallen again as more Americans retire and young people continue to struggle to find work.

Hour Fall, Incomes Grow

With the new jobs, the unemployment rate fell to 5.5%.  This is far below the recession peak, but the total hours worked fell in March.  Some attribute this to the harsh weather conditions in the Northeast.  In total, average hourly earnings rose by an annualized 2.1%, rising 7 cents to $24.86 on average, according to the BLS.

Growth Rates Fall

The Atlanta Federal Reserve saw total economic growth flat line in the first quarter of 2015, which is likely to cause overall growth in 2015 to fall far short of the levels seen in 2013 and 2014. Currently, the Federal Reserve sees 2015 GDP growth of 1.9%, 1.1 percentage points below the target rate that the Federal Reserve has used in setting interest rates.

Many analysts have argued the fall in growth is weather related. Retail sales saw three months of month-over-month declines in the first quarter of 2015, with many blaming extremely cold weather in the northeast. Retail sales initially projected to rise in late 2014 and to continue to rise in 2015, as a combination of income growth and cheap oil offered more discretionary income to U.S. consumers.  Subsequent economic releases do not reflect this trend.

Additionally, business investment has fallen considerably, with nonresidential construction spending falling by double digits on a year-over-year basis.

Futures fell sharply on the news, with the S&P 500 losing 0.6% in the futures market immediately after the news release, and U.S. Treasury rates fell further.