Economy Still Strong But Slowing – Forbes

Two measures always lead the monthly round of economic indicators. One is the Labor Department’s detailed report on jobs growth and unemployment. The other is a report on manufacturers from the Institute of Supply Management (ISM), a private industry group. For March, these indicators each paint a similar picture: The U.S. economy is continuing its post-pandemic recovery, but the pace is slowing, and inflation shows no sign of abating.

Aspects of the Labor Department’s report do have an upbeat tone. Unemployment continues to decline. The number of Americans unable to find work dropped in March by some 318,000 to 5.95 million, a 5.1% drop from February and 9.0% lower than January. The rate of unemployment as a percent of the available workforce fell to 3.6%, down from 3.8% in February and 4.0% in January. Unemployment is way below the 6.0% rate recorded this time last year and gets very close to the 3.5% pre-pandemic near-record low.

Equally encouraging is how widespread the gains were. Adult male unemployment fell to 3.4% in March from 3.5% in February. Adult women were doing even better. There unemployment rate stood at 3.3% in March, down from 3.6% in February. Teen unemployment at 10.0% was down from 10.3% in February and well down from the 12.7% of a year ago. Black unemployment came in 6.2% of that workforce, a striking one-month improvement from February’s 6.6% rate and 9.5% a year ago. The Hispanic unemployment rate was 4.2% in March, down slightly from 4.4% in February and more from 7.7% a year ago, while Asian unemployment at 2.8% was truly striking, down from 3.6% on February and 5.9% a year ago.

The Labor Department’s employer survey shows that the country created some 431,000 new jobs in March. This is a good showing compared with the long historical sweep, but considerably less impressive when compared to the last 12 months, which showed a considerably higher monthly job gain of almost 600,000 on average. Clearly the pace of gain, though still good, is slowing.

That the country is leaving the post-pandemic boom behind is still more evident in the industry detail. Half the jobs slowdown between February and March occurred in retail trade and the leisure and hospitality sector. These two areas were hardest hit in the lockdowns and quarantines and consequently have been leaders in the recovery. Now, clearly, they are slowing. It is also noteworthy in this regard that temporary help showed a significant slowdown in growth and transportation and warehousing suffered small outright declines in employment between February and March.

Wages continued to grow, with the hourly rate up 3.7% from a year ago and the weekly figure, which accounts for overtime, up 4.6% over the same time. That jump has no doubt contributed to a welcome, albeit small rise in the percent of the civilian population either working or looking for work. This so-called participation rate rose from 62.3% in February to 62.4% in March. That is a small shift but an impressive improvement from the 61.5% participation rate recorded 12 months ago when the federal government was still offering a premium unemployment payout. But for all the encouragement offered by the wage hikes, they still fall short of inflation of between 7% and 8% during the past year. Working men and women are running to catch up.

The ISM release paints a similar picture but in brighter colors. This measure weighs firms reporting declines against those reporting increases and so a figure of 50 marks the difference between increase and decline. The overall index for economic activity stood at 57.1 for March. That is well above 50, certainly indicating continued recovery, but it is nonetheless down sharply from February’s index of 59.0 and 60 from late last year. The developing slowdown is even more evident in the forward-looking index for new orders. The March figure of 53.8 is down sharply from February’s index of 61.7. The same could be said about production. At 54.5 for March, it is well below February’s 58.5 and even further below December’s figure of 60.0. The inflation news is troubling. The index for prices to manufacturers stood at a very high 87.1 in March, up from an also high 75.6 in February and 68.2 last December.

The slowdown in the intensity of business activity has marginally eased supply-chain problems. Inventories are more robust. The measure here came in at 55.5 for March, up from 53.6 in February and 53.2 in January. Even customer inventories are catching up. These stood at 34.1 in March, still low but up nonetheless from 31.8 in February. Backlogs have also abated. These fell to a measure of 60.0 in March, still high but down from 65.0 in February. Consistent with the Labor Department’s report, the ISM group reports a rise in the employment index to 56.3 in March from 52.9 in February. Otherwise, the slowing recovery is evident.

None of this should surprise. The inflation has been building steadily for months. As for the slowing in the recovery, any economy would rebound sharply from artificial constraints, as the lockdowns and quarantines were, but once it catches up with what was lost, it almost always slows. That is what is happening in the United States now. When that catchup is complete, likely in the second half of this year, the pace of growth should resume its much slower trend rate for both output and employment.

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