Hiring slowed severely in March, according to today's jobs report released by the U.S. Bureau of Labor Statistics. Nonfarm payroll employment gained only 88,000 jobs, well below the average 169,000 new jobs added per month in the previous 12 months and the lowest gain since last June.
The March data shows that employment grew in professional and business services and health care, but declined sharply in retail, which lost 24,000 positions.
Meanwhile, the unemployment rate ticked down to 7.6 percent from 7.7 percent in February and 7.9 percent in January, on a seasonally adjusted basis. This dip, however, is not a positive sign. Nearly half a million people dropped out of the labor market altogether, and the labor force participation rate, a gauge of how many people are employed or looking for jobs, fell to 63.3 percent -- its lowest level since May 1979.
The private sector shows a similar weakening in job growth. Payroll-processing firm ADP released a private-sector jobs report on Wednesday showing that small businesses added just 74,000 jobs in March, down from a revised 100,000 jobs in February. Companies with 19 or fewer employees added 44,000 jobs in March, while companies with between 20 and 49 employees added 30,000 workers, according to the report. Service jobs showed the strongest gains.
It's unclear whether the slowdown is a hiccup or a sign of things to come.
Mark Zandi, chief economist for Moody's Analytics, believes the job market will come under continued pressure in the coming months as the result of automatic federal budget cuts known as the sequester. While he doesn't think these cuts, the first of which began March 1, have made a significant impact on job growth to date, he believes they will in the next few months.
Sequestration will reduce funding across a range of programs, from infrastructure to defense to small business lending. Without the sequestration, the Congressional Budget Office, a nonpartisan federal agency, estimates that 2013 GDP growth would have been about 0.6 percentage points faster and about 750,000 more full-time jobs would have been created or retained by the fourth quarter.
Health-care reform is another factor expected to weigh on job growth, particularly for small businesses. The Affordable Care Act, signed into law three years ago, mandates that employers with 50 or more workers offer health-insurance coverage to employees or face hefty fines. According to Zandi, there are already some signs that companies close to the 50-employee tipping point are not adding new positions or replacing workers who have left.
As it stands, health care is particularly expensive for small businesses. Small-business health insurance premiums have risen 113 percent over the last nine years, a growth rate of nearly 9 percent annually, according to data on the website of the Small Business Majority, a small-business advocacy group. What's more, the group reports that 72 percent of small-business owners in 16 states who currently provide employee health-care benefits are struggling to do so.