Friday, April 5, 2013

So -- What Gives With the Employment Report? Are We Seeing Sequester Impacts?

Given the less than stellar jobs report, and its close proximity to the sequester, it's natural ask if this report's lower employment readings are the result of the sequester.

In general, no.  The sequester went into effect on March 1, whereas the BLS ends its data collection mid-month  So, at the most, we're looking two weeks of impact on these numbers from the sequester.

However, consider the massive drop in retail employment, which saw a large drop of 38,700.  Also remember that the payroll tax hike went into effect at the beginning of the year rather than March 1.  As a result, we could be seeing the initial impact as retailers either anticipate weaker sales, or, they are already seeing weaker retail sales and are acting accordingly.  We don't know the actual percentage of the previously mentioned possibilities, but if its more latter than former, we do have big problems.

There was also a drop of 7,000 in government employment.  However, consider this chart of the total monthly change in government employment for the last five years:

We've been seeing a slow bleed for the entire expansion, making the argument that this month's drop is caused by the sequester unsatisfying.

Finally, we had a huge drop in construction employment, which went from an increase of 49,000 to 18,000.  The most likely answer here is that construction firms increased their hiring last month either because of jobs on the books or anticipation thereof, but just don't need more employees relative to anticipated building.

I do think there is a decent probability this number will be revised higher, but we'll have to wait for the next few reports to see if that actually pans out.