Spring Swoon Is Regularity For Economy
For the third year in a row, the nation’s economic recovery seems to be petering out just as temperatures start to go up. Hiring has dropped off. Shoppers are putting away their wallets. Government spending cuts are looming.
That has fueled predictions of an abrupt slowdown over the next few months. Economists are forecasting tepid growth of just over 1 percent during the second quarter of the year. The economy was expanding at roughly twice that pace over the winter. In fact, although the drivers have been different, the slowdowns have become so reliable, and the timing so consistent, that economists have given them a name: the spring swoon.
No one seems to have a good explanation for why the recovery has taken a nose dive around the same time each year. Sheer coincidence seems to be economists’ best educated guess. But the swoons underscore just how ephemeral a turnaround can feel.
“The problem is we haven’t been able to go steady-strong,” said Diane Swonk, chief economist of Mesirow Financial. “It’s in fits and starts, and we can’t get beyond that.”
The spring swoons have been primarily felt in the job market. This year, for example, the economy was adding an average of more than 200,000 jobs a month in the winter before plunging to just 88,000 in March. Job growth was cut roughly in half during previous swoons.
At first, economists wondered whether the problem was purely technical. The 2008 financial crisis upended mathematical models for how many people are hired and fired on a normal basis, resulting, they hypothesized, in artificial boosts in the fall that evaporated by spring.
But that explanation for the swoon was almost too easy — and certainly too optimistic. It turns out the trouble lay not in the data but in the real world.
In 2011, the problem was international. A tsunami in Japan coincided with a financial crisis in Europe that pushed Greece into default and almost caused a collapse of the continent’s common currency. Last year, economists blamed the weather. The mild winter, they said, siphoned away traditional springtime jobs.
This year, all fingers are pointed at Washington.
Fearing federal tax increases scheduled to take effect in January, employers appear to have showered workers with bonuses and other extra compensation in December. Data from the Commerce Department show personal incomes jumped 2.7 percent that month, the fastest monthly increase since the 2009 stimulus bill.
The extra income probably boosted retail sales in January and February before the quick fix faded. Meanwhile, an increase in the payroll tax means the average worker will pay roughly $1,000 more over the course of the year.
The impact of those changes became clear in March, when retail sales fell 0.4 percent compared to the previous month. Electronics retailers, department stores and even auto dealerships all experienced declines. The drop-off was particularly troubling because consumers are the engine of the nation’s economy, driving about two-thirds of the gross domestic product.
In addition, indiscriminate cuts to federal government spending — known as sequestration — are only beginning to ripple through the economy. Some surveys have also shown that businesses are beginning to feel the costs of implementing President Obama’s health-care law.
“So why isn’t the U.S. economy growing more quickly?” New York Fed President William Dudley said in a speech yesterday. “The most important reason is the sharp shift in federal fiscal policy from mild restraint in 2012 to much greater restraint in 2013.”
The spring swoon in the job market hasn’t always translated into slower economic growth, however. Last year the drop-off coincided with GDP falling from a 2 percent rate of growth to just 1.3 percent. But in 2011, the recovery accelerated in the spring despite some weakness in hiring. The economy didn’t really hit the brakes until Congress began debating the debt ceiling over the summer.
This year, economists thought they were ready. Many had long predicted a slowdown during the second quarter because of higher taxes and government spending cuts. But they were caught off guard by how sharply businesses have curtailed hiring so far.
It will take at least through the summer for what has been dubbed the “fiscal drag” to work through the economy. The recovery is expected to start gaining momentum again - you guessed it - just in time for winter.
Economists say there are good reasons to believe this cycle is different. The strength of the housing market is one major factor. On Tuesday, government data showed developers are on pace to break ground on more than 1 million homes, only the second time the housing sector has crossed that mark in the past five years.
Rising home prices are helping many households rebuild wealth lost during the recession and bolstering their financial security. Stock markets have reached record highs, and damaged industries such as construction and manufacturing have fueled job growth.
Stronger fundamentals should help the economy bounce back from the spring swoon. And with any luck, the third time will be the charm.
“We do have a slowdown and we do have a speed bump,” Swonk said. “But we don’t have a wall.”
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Jim Tankersley contributed to this report.