FOR America’s economy, April is the cruellest month. In each of the past three years the economic recovery started with a burst of momentum, only to swoon over the spring and summer. Sadly, there are now signs of a repeat.Despite a big tax increase on January 1st, employment, retail sales and housing all performed sturdily in January and February this year. Gross domestic product, which stalled at the end of 2012, is thought to have grown at a healthy 3% or more, at an annualised rate, in the first quarter. The stockmarket duly hit fresh highs.
Then in March the news abruptly turned sour. After averaging 208,000 in January and February, employment growth slowed sharply to just 88,000. Retail sales, excluding cars and petrol, dropped—as did new construction starts on single-family homes. The fall-off in housing activity is especially unsettling because fundamental determinants, from low mortgage rates and lean inventories to an increase in the number of households being formed, have all been pointing to continued gains.
The eerie regularity of this “spring swoon” (see chart) has aroused suspicions that something is amiss in the data. Government statisticians use models to adjust the raw data for seasonally recurring effects, such as extra-strong retail sales in December or slack construction in the winter. Any residual change should reflect actual trends in the economy, not the vicissitudes of the calendar. One theory is that the models interpreted the economy’s plunge in late 2008 and early 2009 as partly seasonal, and responded by nudging up subsequent winter figures and nudging down summer data to compensate. But the federal Bureau of Labour Statistics (BLS) has found that the pattern persists even if the job numbers are seasonally adjusted without those recession months.
Michael Feroli, an economist at J.P. Morgan, offers a slightly different take. Large firms, he says, tend to do most of their hiring in the fourth quarter, whereas smaller ones mostly hire in the second quarter. Since the recession ended in 2009, large firms have been healthier than small firms, which could explain why employment consistently strengthens in the fourth quarter and weakens in the second.
But perhaps the most persuasive explanation for the seasonal swoon is mere coincidence: serious shocks happen to have unfolded over the spring and summer months. The first Greek bail-out came in May 2010; the Japanese tsunami struck in March 2011 and the Arab spring sent petrol prices soaring at around the same time; America’s debt-ceiling showdown occurred that summer. Record warm weather boosted the economy in the winter of 2012, while a severe drought held it back that summer.
But if the swoon is just caused by bad luck, what misfortunes could explain the latest dip? Some economists blame an early Easter, others a cold spring, still others jitters over Cyprus, though none of these seems plausibly to explain the magnitude and breadth of the weakness.
That leaves austerity. The expiry of a payroll-tax cut and the imposition of higher income taxes on the rich will cost taxpayers some $150 billion this year in higher taxes. On March 1st the “sequester”—across-the-board federal spending cuts worth $85 billion in the current fiscal year—took effect. The economy is now starting to look less resilient in the face of that austerity than it did at first.
To be sure, the timing is off. The March swoon comes two months after taxes increased, but a month before most sequester-related cuts begin. It may be pointless, though, to search for precise explanations, since measuring a $16 trillion market economy is such an imprecise exercise. The BLS first said that private job growth averaged a paltry 51,000 in May, June and July of 2010, and 111,000 in the same months of 2011. Multiple revisions later, it has raised those figures to 100,000 and 189,000 respectively, casting doubt on whether the 2010 and 2011 swoons happened at all.
The odds are, then, that the economy is not really stalling now, which may explain why the stockmarket has for the most part shrugged off the bad news. But the economy has not shrugged off the effect of austerity. Instead, it still plods along with growth of about 2%. A recovery worthy of the name is still to come.