A mixed bag of economic data this week has cast doubt over the pace of improvement in the job market.
Businesses have added an average of 200,000 workers over each of the past six months, helping drive the jobless rate down to its lowest level in four years. But whether those gains are sustainable is an open question, as the Labor Department is set to release its monthly tally of job creation and unemployment on Friday.
Economists are expecting the report to show that the country added 165,000 jobs in May — the same as the previous month. They forecast the unemployment rate to stand at 7.5 percent.
Thursday morning’s weekly report on the number of people seeking first-time unemployment benefits was a prime example of the uncertainty. About 346,000 new claims were filed last week, down from the previous week. But the figure is highly volatile, and the one-month average of new claims rose slightly.
Other data suggest economists’ initial forecasts may be too optimistic. A private estimate of hiring by consulting firm ADP found that the economy added only 135,000 jobs in May. Although the figure was higher than the firm’s April estimate, it was still not enough to generate the self-sustaining recovery that has proved frustratingly elusive.
“It’s not like we’re falling off a cliff,” said Mark Zandi, chief economist of Moody’s Analytics, which calculates the report for ADP. “It just feels like we’re throttling back a little bit.”
The sector with the strongest job growth was professional and business services, which added 42,000 positions last month, according to ADP. Although the construction industry continued to grow, in part because of an improved housing market, the gains were offset by a drop in manufacturing employment.
Concerns about a contraction in manufacturing were presaged in the Institute for Supply Management’s monthly manufacturing index released earlier this week. The index showed the sector actually shrank for the first time since November and hit its lowest level in four years.
Zandi said that the industry may have been hurt by cuts in federal defense spending. Economists have blamed lawmakers in Washington for weighing down the country’s economic recovery through a combination of tax increases and spending declines.
“It’s quite amazing the economy is holding up as well as it is given how powerful the fiscal head winds are,” Zandi said.
The National Federation of Independent Business, a trade group, also pointed a finger at fiscal policy as the cause of the uncertainty that is holding back businesses from bringing on new workers. The trade group warned this week that small firms may be reaching the limit of their hiring capacity.
An NFIB survey found that the pace of hiring among small businesses last month was essentially flat. The small firms hired an average of 2.6 workers but let go an average of three employees. The NFIB survey also showed that 79 percent of firms made no net change in employment.
“The news here is that the steady but painfully slow journey toward positive job creation can’t seem to maintain any steam,” NFIB chief economist William Dunkelberg said.
Middling job creation will probably translate into ho-hum economic growth of roughly 2 percent. Nathaniel Karp, chief economist for BBVA Compass, said policymakers and the public should not be satisfied with that result.
“People are getting used to that 2 percent as business as usual,” he said. “Is that really where we want to be? The answer has to be no.”