A string of fresh economic data Thursday, from a bounce back in manufacturing to a drop in new claims for unemployment insurance, offered hopeful signs of spring. But as the U.S. continues to try to shake off the worst downturn since the great Depression, there’s still a lot of storm damage to clean up.
The best news came from a closely watched monthly report from a purchasing executives trade group, the Institute for Supply Management, which found the U.S. manufacturing sector in March grew at its strongest pace in 5 1/2 years. As industrial companies continue to lead the recovery, the ISM index jumped to 59.6 in March from 56.5 in February — the eighth straight month of expansion — and much better than economists had expected. A score above 50 indicates growth.
After cutting inventories to the bone during the recession, companies have begun restocking warehouses and store shelves as they see early signs demand is picking up again. New orders for goods also picked up in March. That could bode well for future expansion of production.
It could also signal the end of an historic wave of layoffs that sidelined some 8.4 million workers. Even as hiring picks up again, it will take a long time to repair the damage to economy from the bursting of the housing bubble and the near collapse of the financial markets.
"The unemployment rate is still terribly high,” Treasury Secretary Timothy Geithner told NBC's "Today" show. “And it's going to stay unacceptably high for a long period of time."
With the housing market still struggling to find a bottom and commercial real estate market mired in a deep recession, the construction industry remains badly damaged by the economic collapse that began more than two years ago. On Thursday, the Commerce Department reported that construction spending fell for the fourth straight month during February to the slowest rate in nearly 7-1/2 years.
Consumer spending, while also showing recent signs of strength, is still weak by historical standards. Despite the Federal Reserve’s unprecedented policy of holding short-term interest rates at near zero, rates on long-term bonds — which are based on investor sentiment — have recently begun ticking higher. That’s pushed mortgage rates higher as well, a trend that could weigh on the fragile housing market.
On Thursday, a survey released by Freddie Mac showed that U.S. mortgage rates rose for a third straight week, inching above 5 percent to their second highest level this year.
Owners of small businesses report that while they see positive signs, they’re still not quite confident enough to begin hiring in large numbers, according to Stuart Hoffman, chief economist at PNC Financial which just completed its latest small business survey.
“There’s still caution out there," said Hoffman. "But I would say this is a case where the small businesses, that do create a lot of jobs, are saying they're right on the cusps and I think we're going to see some of that in the next couple of jobs reports."
There are other signs that “green shoots” of spring may be poking through on the job front, including a Thursday report showing a drop in new claims for unemployment insurance.
“Recruiters around the country are saying that they are busier now than at any time since before the recession,” said Stuart Schweitzer, global market strategist at JPMorgan Private Bank. “And that is true across all geographies and almost all industries, commercial construction is the exception.”
So far, the early signs of life in the job market isn't showing up in hiring data. Private employers shed 23,000 more jobs in March, casting doubt on forecasts for job growth ahead of Friday's employment report from the government. Economists had expected the ADP Employer Services report, jointly developed with Macroeconomic Advisers LLC, to show a gain of 40,000 private-sector jobs in March.
Still, economists have high expectations for Friday’s jobs report, with most looking for the report to show a net gain of 200,000 jobs in March. That would be the first convincing job gains since the recession began in Dec., 2007.
The report will come with some critical asterisks. A large portion of those jobs are for temporary positions with the Census Dept. as it ramps up its decennial count of American households. The March jobs report is also expected benefit from an aberration in the data for February, when a major storm disrupted the many workplaces and may have depressed the official employment level.
A sizeable gain in the employment data for March could also support the view that the U.S. economy has reached a point where hiring can begin again at a sustained pace. Hiring is typically one of the last indicators to turn positive at the end of a recession, as businesses wait to see a consistent gain in demand before taking on new workers.
Much of the increased workload for the past few quarters has fallen to existing workers. That’s a big reason for huge gains during the last two quarters in productivity, which simple measures how much output is generated by each worker. For the past six months, the data show, Americans have been working a lot harder for the same paycheck. Eventually, employers have to start hiring again.
“There are lags with respect to the labor market,” said Michael Darda, chief economist at MKM Partners “But importantly, all of the indicators that you would need to see turned before jobs (increase) have turned.”
But even if the economy begins producing another 200,000 jobs a month on a sustained basis —which is by no means certain — the near-double-digit unemployment rate will remain stubbornly high for a long time. Deutsche Bank economist Joe Lavorgna estimates it could be four to five years before the economy returns to so-called “full employment” where anyone who wants a job can get one. Until then, the “recovery” won’t feel like it to many Americans.
“We've just opened up so much slack in the economy, so it's going to take a long time, a lot of growth, to get back to where we were before this thing happened,” said Lavorgna. "A lot of people are long-term unemployed at this point. So, it's going to be a long, slow slog."