The question for 2013 is which of these forces will prove more powerful; the answer will determine whether the U.S. economy can finally break out of its sluggish growth pattern of the past three years (or, conversely, if it slows down even more or even falls into recession).
In that sense, the February jobs report, and every other one in the coming months, is a referendum on this question of which force buffeting the economy is more powerful.
The good news is that all signs so far are pointing to a solid jobs market in February, despite the fiscal retrenchment. The Labor Department said Thursday that only 340,000 people filed new applications for unemployment insurance benefits last week. Over the last four weeks, the number has averaged 349,000—which is the lowest level since March 2008. That’s right: Half a decade ago.
Payroll processing firm ADP said Wednesday that private employers added 198,000 jobs in February and revised up its January estimate to 215,000. If the official government numbers out Friday match those levels, it will be a positive surprise.
Analysts are expecting the Labor Department numbers to show 163,000 net jobs added in February, little changed from the 157,000 reported in January. The unemployment rate is forecast to remain unchanged at 7.9 percent.
Similarly, retailers have reported that by February they were starting to feel the pinch from the 2 percentage point increase in the payroll tax that went into effect Jan. 1. If that also led them to cut back on workers, then there could be a reversal of the 32,600 jobs that the retail sector added in January.
That’s the bad news about the ways that the age of austerity might be evident in the new jobs numbers. On the flip side, the strengthening in the private sector could come through as well. That would be most evident in construction employment, which notched a nice 28,000 gain in January and has a recovering housing market at its back. The housing rebound could also show up in categories like wood products manufacturing (somebody has to make all that lumber from which houses are built, and the sector added 900 jobs in January) and real estate (somebody has to sell the houses once they’re built—and that sector added 5,000 jobs).
We may have to wait to see just what economic damage is done by the sequester. But the big release Friday morning will give a sense of what, in this battle over the future of the economy, is winning.