Rising Gas Prices, Deficit Woes Cast Shadow on Jobs Outlook
The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (TheStreet) -- Economists expect the Labor Department to report that the economy added 185,000 jobs in April, after adding 194,000 and 216,000 in February and March.
In the first quarter, bad weather slowed construction activity, rising gas and health care prices tapped off consumer dollars and weakened demand in other sectors, and defense and state and local government spending slowed. GDP growth was a paltry 1.8% -- much less than economists forecast in January -- and well below the minimum sustainable rate.
Growth less than 2% to 2.5% is not sustainable because many businesses can meet such modest growth in demand by improving productivity and laying off workers to maintain margins in the face of rising energy and other commodity prices. Layoffs slice household income, and a negative cycle of reduced spending begins.
Indeed, the four-week moving average for new unemployment claims moved up to 408,000 for the week of April 23 from 390,000 the week of April 2 -- a rate below 350,000 is consistent with a strong economy and above 400,000 is perilously close to recession levels.Without stronger growth in the second quarter, the economy will cycle down into recession -- it can't likely continue to drag along at about 2%.
Outlook for Second Quarter GrowthFor the second quarter, the glass may be half empty or half full, depending on perspective. Gas prices continued to surge in April and May, and initial private surveys of chain store activity indicate higher gas prices dampened Easter spending. We will get a clearer picture on May 12, when the Commerce Department publishes preliminary April retail sales. The housing market remains a drag and the full impact of the earthquake in Japan will not be felt until the end of May. Health care costs continued rising, eroding purchasing power, and state governments are taxing more and spending less.
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