Recent reports on retail sales, factory production and household spending have pointed to a slowdown in economic growth this quarter.
“There’s a pretty broad set of indicators pointing toward deceleration as we go into the second quarter,” said Keith Hembre, who helps oversee $125 billion as chief economist at Nuveen Asset Management LLC in Minneapolis and a former researcher at the Minneapolis Fed. “It reflects a fairly tepid pace of underlying demand growth, weakness abroad and the slowdown and cutbacks in government spending.”
Automatic federal spending cuts known as sequestration took effect on March 1. If no action is taken by Congress, spending will be reduced by $85 billion this year and $1.2 trillion over nine years. Consumers are also contending with a two percentage point increase in the payroll tax that took effect in January.
Companies added 119,000 workers in April, the fewest since September, followed a revised 131,000 gain in March that was smaller than initially estimated, figures from the Roseland, New Jersey-based ADP Research Institute showed today. The median forecast of 37 economists surveyed by Bloomberg projected a 150,000 advance.
By hiring fewer employees, companies are signaling they expect demand will deteriorate as reductions in the federal budget and higher taxes weigh on the expansion.
The Labor Department on May 3 will probably say the unemployment rate in April remained unchanged at 7.6% as employers added 145,000 workers to payrolls, according to the median estimate in a Bloomberg survey. Payroll growth slid to 88,000 in March from 268,000 the month before.
Manufacturing has shown signs of weakness. The Institute for Supply Management’s factory index fell to 50.7 in April from the prior month’s 51.3, the Tempe, Arizona-based group said today. Economists projected a reading of 50.5 for the gauge, according to the Bloomberg survey median. Fifty is the dividing line between expansion and contraction.