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More Government Job Cuts Are Coming: BofA Economist

Bernice Napach
Daily Ticker
More Government Job Cuts Are Coming: BofA Economist

It’s the single most important data report to gauge the health of the U.S. economy, but lately the jobs report has been anything but exciting. So far this year, the U.S. unemployment rate has ranged between 7.5% and 7.9% and payroll growth has averaged about 185,000 jobs per month.

Economists expect Friday’s jobs report will show the unemployment rate unchanged from April at 7.5%--the lowest since December 2008—and payroll growth near 170,000—little changed from April’s 165,000 increase.

Michelle Meyer, senior U.S. economist for BofA Merrill Lynch, tells The Daily Ticker she expects “another report showing improvement and healing in the labor market but only at a moderate pace.”

Meyer expects a continued slow recovery following the slack in the labor market caused by the Great Recession with long-term unemployment remaining high relative to what would prevail in a normal recovery.

As of April, 4.4 million Americans have been unemployed for 27 weeks or longer (the Department of Labor’s definition for the long-term unemployed) accounting for just over 37% of the jobless population. That’s down 3.1 percentage points over the past year, or 687,000, according to the Labor Department.

"We’re seeing momentum in the labor market,” says Meyer. “We’re seeing job creation and a healing of the labor market. The question is: is it fast enough?”

While job growth is increasing planned layoffs are declining. Employment consulting firm Challenger, Gray & Christmas, reported Thursday that employers announced 36,398 job cuts last month, down 4.5% from 38,121 in March.

"So far, the threat of massive job cuts related to federal spending cuts has failed to materialize,'' John Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement, referring to the cuts in government jobs due to the sequester budget cuts.

The across-the-board government spending cuts of $85 billion went into effect in March and so far fewer than fewer than 1,500 job cuts have been directly attributed to the federal cutbacks, Challenger said.

But there could be more.

“The first step [from sequester] is furloughs,” says Meyer, "and that’s happening slowly. The second step will be outright cuts but they have been only marginal cuts so far."