Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=222704
Story Retrieval Date: 9/17/2014 12:31:01 AM CST

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Marina Cracchiolo/MEDILL

Graph shows ADP nonfarm job increases in the past year.


Disappointing job growth vexes economists

by Marina Cracchiolo
Jun 5, 2013


U.S. companies added 18 percent fewer jobs than expected to their payrolls in May, according to a monthly report, leaving economists frustrated by the rate of economic recovery and readjusting their forecasts.


Automated Data Processing Inc. reported that private sector employment increased by 135,000 jobs from April to May. Economist surveyed by Bloomberg had predicted 165,000. April's growth over March was 119,00.

“We’ve seen weak employment growth,” said Strider Elass, an economist with Illinois-based First Trust Portfolios LP. “It’s nothing to write home about and we have more of that.”

The ADP report showed hiring was up in all sectors, with the largest increases in the service industry. But 6,000 manufacturing and 3,000 goods-producing jobs were shed.

Mesirow Financial economist Adolfo Laurenti said the manufacturing figures are particularly concerning for the Midwest since it’s so heavily reliant on the sector. He referred to the report as “a wash for Chicago.”

Unemployment is the Chicago region, which runs from Gary, Ind., to Kenosha, Wis., is stagnant at 9.1 percent, compared to the national average of 7.5 percent.

“We are lagging,” he said, adding that before the recession, the Chicago-area economy was reflective of what was to come nationally, but it’s since fallen behind on some key sectors such as energy, and it’s less indicative now. Chicago still lacks momentum in the construction industry, which has started to recover in other parts of the country, Laurenti added.

He stated that another dent in Chicago’s economic recovery is a slowdown in the rate of employment growth in small businesses, although nationally, small business payrolls grew by 58,000 jobs.


Laurenti said small and medium businesses are not as sensitive to government sequestrations as large firms, but they are afraid to make big moves until it’s clear how the national Affordable Care Act. The policy is set to go into effect in 2014, and will affect business costs.

 

"This is a game-changer for many small businesses," said Laurenti.

Another disconnect that has left economists scratching their heads is the volatility of jobs added, when compared with the growth of the economy.

“We’re not growing as much as we want, but we’re growing,” said Laurenti. “And yet, here is the question? ‘We do not see the perfect correlation between the number of jobs created and state of economy."

In the third quarter of 2012, monthly job creation was on the lower end at 150,000 while the economy was clocked at growing at an above-average rate of 3.1 percent. The next quarter, economic growth was .4 percent but an average of 208,000 new jobs a month were added. During the first quarter of 2013, the economy grew at 2.4 percent and added 206,000 jobs. Economists predict 150,000 jobs a month will be added in the second quarter of 2013, but the economy, they say, will grow by only 1.6 percent.

“This confirms our view that the economy has weakened since the start of the year,” said Diane Swonk, chief economist at Mesirow Financial, in a statement.

Economists closely follow the ADP report because it offers clues to the state of the labor market just days before the Labor Department releases its crucial jobs data each month.

The ADP numbers prompted Mesirow Financial to shrink its estimate of May's nonfarm payroll growth, to be released Friday, to an addition of 140,000 jobs from 150,000. Similarly, First Trust reduced its prediction to 153,000 jobs from 167,000.

“We call this the ‘plow horse economy,’” Elass said. “It’s not going to keel over and die and its not going to win any races. We’re not headed for recession.”