As jobs engine chugs along, Q2 may be off to good start
The first quarter wasn’t kind to the economy, with the government last week reporting anemic growth of 0.5% at an annual rate. Key reports this week on job growth and the manufacturing and service sectors should begin to reveal whether spring will deliver brighter growth prospects.
Construction spending has exemplified the economy’s split personality lately. Non-residential building has struggled, along with business investment generally, amid weakness in oil production and manufacturing. Housing starts, meanwhile, are rising smartly.
In February, that wasn’t enough to overcome a sharp drop in commercial and government activity, resulting in a 0.5% fall in total construction spending. With existing homes in short supply, residential activity should continue to advance, says Lewis Alexander, chief U.S. economist of Nomura. Economists expect the Commerce Department on Mon
day to report that construction spending in March increased a modest 0.5%, reversing the previous month’s decline.
Manufacturing activity expanded in March for the first time in six months, suggesting that the headwinds from a weak global economy, strong dollar and low oil prices may be easing. Yet manufacturers and oil producers have cut jobs the past two months, and regional factory surveys were mixed in April. Economists figure the Institute for Supply Management will announce that its index of factory activity ticked down in April but remained in expansion territory.
By contrast, the service sector, largely driven by consumer spending, has generally held up well. Economists expect ISM on
Wednesday to record a modest rise in its non-manufacturing index, leaving it solidly in expansion mode.
The sturdy service sector has underpinned healthy payroll growth, with employers adding an average 209,000 jobs a month so far this year. With initial jobless claims — a good barometer of layoffs — sinking to a 42-year low and job openings remaining elevated, RBC Capital Markets believes the labor market turned in another strong showing in April, and there’s “a very good pipeline for job growth near-term.”
Economists expect the Labor Department to report Friday that employers added 200,000 jobs in April. The firm figures a recent spike in the share of Americans working or looking for jobs may have moderated, pushing down the 5% jobless rate. Also worth watching: whether tepid wage growth just above 2% a year is starting to pick up as the labor market tightens.
There’s “a very good pipeline for job growth nearterm,” reports RBC Capital Markets.