Economix Blog: Sequestration and the Jobs Report

The March jobs report came in much weaker than expected, with employers adding just 88,000 workers over the course of the month. Did sequestration – the $85 billion in mandatory budget cuts that Congress never managed to unwind, despite promises to the contrary – take a bite?

The short answer is no. At least according to the preliminary data, sequestration does not seem to be particularly at fault.

Government employment actually climbed during March, if you exclude the Postal Service, which shed nearly 12,000 workers. Economists expect the government ranks to take a hit as agencies and offices carry out their budget cuts before the end of the fiscal year in September.

But not yet. The budget cuts formally came into effect on March 1, and many agencies waited to see if Congress might undo them later in the month. Furloughs, layoffs, contract changes and other disruptions have started accumulating, but remain very small at this point. Economists expect the jobs hit from sequestration to be significant, but backloaded toward the end of the year.

But another change emanating from Washington seems as if it might be having a serious effect on jobs: the expiration of the payroll tax cut. In January, Congress effectively increased payroll taxes by declining to extend a temporary tax holiday. That wiped out a full year’s worth of wage gains for millions of Americans, and economists expected it to depress consumer sentiment and consumer spending.

Lo and behold, the retail sector showed significant weakness in this report, perhaps evidence of families’ having less spending money and cutting back at the mall. Employment dropped by 24,000 positions, with significant declines in clothing stores, garden supply stores and electronic stores.

Granted, that could just be statistical noise, and next month’s revisions could erase the drop. In other government reports, the retail sector has looked just fine. Commerce data showed consumer spending surging, and separate private reports have showed consumer confidence climbing. But it could be that families are spending a little less, thinning retailers’ profits and forcing them to cut back on staffing.

Article source: http://economix.blogs.nytimes.com/2013/04/05/sequestration-and-the-jobs-report/?partner=rss&emc=rss