Last week's economic reports delivered seemingly incongruous messages: The economy shrank in the fourth quarter for the first time since the recession, but job growth was more robust than initially estimated.
In fact, job growth the past two years was noticeably stronger than initial estimates, according to revised Labor Department figures released Friday, even while the economy has plodded along at a lackluster pace.
That makes forecasting job gains for 2013 especially tricky. Will the same pattern continue? Will the economy shift into a higher gear and catch up to the job market? Or will job growth lose steam without stronger economic gains?
The answer depends on which economist you ask. Several top economists expect stronger payroll gains to continue this year due to both an ongoing need to make up for excessive layoffs in the recession and an improving economy. Another possibility is that the weak economic growth will be revised up, more closely matching the job gains.
Last week initially brought the jarring news that the economy contracted at an annual rate of 0.1% in the fourth quarter, mostly because of temporary factors. Still, the economy has grown at a tepid pace of 1.5% to 2% each of the past two years.
Then, the Labor Department said that monthly job growth averaged 175,000 in 2011 and 181,000 in 2012. It previously estimated monthly gains of 153,000 each of those years.
"It suggests the economy has been creating jobs at a meaningfully faster clip," says Mark Zandi, chief economist of Moody's Analytics.
Typically, however, economic growth of over 3% is needed to create that many job additions, says Jim O'Sullivan, chief U.S. economist of High Frequency Economics.
This isn't a typical recovery, however. Even modest economic growth is requiring strong hiring because employers cut more workers than necessary in the recession and were reluctant to hire early in the recovery. Instead, they worked existing employees harder. "That can only go on so long" as employees become overtaxed, says Dean Maki, chief U.S. economist of Barclays Capital.
The trend is seen in the growth of productivity, or output per labor hour. Productivity rose 1.8% in 2010 as employers added an average of just 85,000 workers a month, squeezing more out of each employee. In 2011, productivity growth slowed to 0.6%, as hiring more than doubled.
Maki expects slow productivity growth again this year as employers continue to make up for too many recession-era layoffs. He forecasts modest economic growth of 2.1% amid federal budget cuts but healthy average monthly job gains of 183,000.
O'Sullivan doesn't think such strong job growth can be sustained this year without a more robust economic expansion. Yet he says a stronger economy is likely as housing rebounds and rising stock and home values more than offset a payroll tax increase and federal cutbacks.
He expects the economy to grow close to 3% this year as employers add about 175,000 jobs a month.
Tom Gimbel, CEO of LaSalle Network, a Chicago staffing firm, says placements were up 30% last year. Companies, he said, boosted hiring as sales rose and concerns over the new health care law have faded.
A similar pattern is shaping up this year, he says, with placements up 80% vs. a year ago. "I think companies are cranking it out," he says.
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