Why Slower Economic Growth May Not Mean Fewer New Jobs

job interview Job creation has lagged in the current economic recovery, leaving many people to wonder where the jobs are. Within the last four months or so, however, the labor market has begun to show strength, creating more than half a million new jobs since December as the economy has picked up steam.

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But some private economists are expressing concern that job creation may stall because economic growth appears to hit a bit of "air pocket" during the first three months of the year. After expanding as much as 3.1 percent during the final two quarters of last year, expectations are the economy grew at a slower pace during the first three months of 2011.

The federal government will release its first measure of first-quarter economic growth, known as gross domestic product, or GDP, on Thursday about an hour before stock markets open in New York. And market watchers on Wall Street forecast that number to be about 2 percent -- or a bit more than a full-percentage point lower than the fourth quarter, according to a consensus estimate compiled by Bloomberg News.

If that expectation holds true -- and the economy is indeed growing more slowly -- might it signal a slow down in the number of newly created jobs?

Not necessarily says Mark Doms, chief economist at the Commerce Department, which compiles the GDP data. Doms says it's not unusual for a dip in GDP growth to occur as employment is ramping up. "The main reason is simply that quarterly changes in employment and GDP are volatile," he writes in a blog post on the agency's website.

"Short-term numbers have a way of moving up and down a lot. That's why economists emphasize longer-term averages that smooth out this volatility," he says.

A similar example is weekly claims for unemployment benefits. In recent months, the overall trend is that fewer Americans are applying for jobless benefits as the number of layoffs decline. But that doesn't prevent the occasional jump in claims that sometimes gives investors and job seekers alike momentary jitters.

Dom's blog entry contains a graph that helps explain the volatility that accompanies job and economic growth during recoveries. It notes, for example, that in late 2009 and early 2010, the U.S. economy witnessed a combination of a solid economic growth and weak job creation.

Another reason for the disparity between growth in GDP and jobs, Doms says, is that companies adjust the number of hours employees work in addition to adjusting the number of employees. In part, that's because employers are loathe to hire new workers just as the economy picks up until recovery appears more certain.

But another big factor is technology, which has allowed companies to produce much more without having to hire many more workers. Because of that, Doms says, the number of hours worked tends to rise and fall before employment does.

Yet another reason for the seeming disconnect is that GDP can vary greatly from quarter to quarter -- about 3 percent on average during the past decade. Such variations are caused by things such as seasonal variations in hiring or demand for certain products. That's a big swing, Doms says, and is one reason analysts shouldn't place too much emphasis on such fluctuations.

Finally, Doms says it's worth noting that GDP figures are revised not once but twice before being inked in the record books. The revisions include data that may not have been available during initial reporting and thus are a better reflection of how much the economy actually grew.

So what does this all mean for the average job seeker or consumer? For the most part, very little. Today's GDP number may disappoint investors, but the overall perception is that the economy is indeed growing and employers are continuing to hire, even though the numbers may not be strong enough to satisfy critics of the Obama administration's economic policies.

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David Schepp

Staff Writer

David Schepp has spent more than a dozen years covering business news for the electronic and print media, including Dow Jones Newswires, BBC News, Gannett Co., and most recently at AOL's DailyFinance. Nearly 10 years ago, he started writing a weekly People@Work column, looking in depth at issues facing workers in today's workplace. The syndicated column appeared in newspapers and websites nationwide before it made its debut on DailyFinance in 2010. Schepp now continues that tradition at Aol Jobs, covering the jobs beat and providing readers insight and analysis into the nation's challenging employment scene.

Schepp holds a Bachelor of Arts degree in journalism from Metropolitan State College of Denver.

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