March Payrolls: First Hitch in Economy's Stride

Job growth slipped in March, offering the first hint of a slower pace in the remarkable U.S. economic expansion.

The Labor Department disclosed Friday that payrolls fell by 36,000 last month. The drop surprised economists, who had expected a gain, although less than the 350,000 average monthly rise for the last five months. The unemployment rate rose slightly, to 4.7% from 4.6%.

The decline in jobs was centered in the construction industry, where payrolls fell 88,000 after four months of strong growth. It was the largest monthly slip in construction jobs since January 1991, when they fell 104,000.

In part, the change was technical and weather-related, according to Katharine Abraham, head of the Bureau of Labor Statistics. Atypically mild weather meant fewer winter layoffs in the construction sector and thus slower spring hiring, she said.

But job growth has also turned anemic in the retail sector, suggesting that consumer activity may be flattening. Restaurant payrolls plummeted by 43,000 last month.

"We believe that job growth will remain moderate going forward," said Bruce Steinberg, chief economist at Merrill Lynch & Co. "Nothing could be more important to the Fed because the labor market is the only potential source of inflation in what is an otherwise deflationary pricing climate." He noted that manufacturing jobs edged up 3,000 in March but hours worked slipped 0.6%, producing "a third straight month of weak industrial production due to the Asian crisis."

A day earlier, in another sign of peaking activity, the government reported that overall February factory orders fell by a more-than-expected 0.9%, while manufacturing inventories grew 0.5%.

Meanwhile, the National Association of Purchasing Managers said its general business index advanced in March but export-related areas weakened, presumably in reaction to the Asian financial crisis. Most economists continue to expect a slowdown stemming from the Asian currency morass, but the timing remains uncertain, and one esteemed Wall Street observer has expressed doubt that the economy's stride will be broken at all.

Top market strategist Abby Joseph Cohen of Goldman, Sachs & Co. recently said she anticipates little impact from Asian problems on U.S. business conditions and sees "no recession in our forecast horizon." Ms. Cohen refers to the nation's economy as "Supertanker America."

Indeed, even the optimistic Ms. Cohen's prediction that the Dow Jones industrial average will hit 9,300 this year is beginning to look tame. The blue chip index traded above 9,000 on Friday.

But the latest data seem to bolster the slowdown scenario. "In spite of the weather, manufacturers are already feeling intensifying foreign competition, deteriorating sales trends, and weak pricing," said David A. Levy, research director at the Levy Economic Institute of Bard College, Annandale, N.Y.

"The U.S. trade deficit is starting to balloon as Pacific Rim economies slide into a serious recession," said Norwest Corp. economist Larry J. Wipf. "In February, imports surged and exports plunged at the nation's two busiest ports: Los Angeles and Long Beach," Calif.

"A widening trade deficit could shave nearly two points off of first- quarter economic growth," he said, "counteracting strong domestic demand.

While first-quarter gross domestic product growth could still top 3%, further slowing is expected by midyear."

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