The past four years have seen U.S. economists collectively re-enacting a twist on an old fairy tale. Instead of The Boy Who Cried Wolf, we have The Boys and Girls Who Cried Second Half Economic Recovery.
One day, they will be right – and poor first-half results will be followed by economic acceleration in the third and fourth quarters. But Friday's payroll report, showing 126,000 new jobs when 245,000 were expected, provides no evidence that this is the year.
So far, 2015 has followed the same disappointing pattern as the past five years. The Citi Economic Surprise Index for the U.S. – which measures economic statistics relative to expectations – has fallen hard through the year. The Surprise Index stands at minus 56.50 (a zero reading would indicate that all economic data were reported in line with consensus estimates), a far cry from the upside surprise of 28.3 on Jan. 1.
The chart shows a breakdown of the most recent non-farm payroll report broken down by industry. Professional services, a hodgepodge category of occupations including accountants, architects, consulting and human resources companies, created the most jobs at 40,000.
Education and health, two areas with little sensitivity to growth in gross domestic product, combined to form the second-biggest job-creating sector at 38,000. Health care pulled much of that weight with the hiring of 30,000.
The bad news is that many of the most cyclical sectors of the U.S. economy – the industries that would grow fastest if growth were accelerating – had the worst results. Construction hiring was non-existent as the sector lost 1,000 jobs. A thousand manufacturing workers also lost their jobs in March. The real damage, however, was in the mining and logging category which includes oil and gas production. That industry shed more than 11,000 workers for the month.
Severe winter weather in the populous Northeast is undoubtedly a factor in the poor showings for construction and selected subcategories such as trucking. The point remains, however, that there is little evidence of an acceleration in the U.S. economy. And investors should be in a "show me" mood after the numerous economic false starts in the past number of years.
GDP growth in the first quarter of 2015 is almost guaranteed to be disappointing. Economists now forecast a 2 per cent expansion when as recently as Feb. 1, the expectations stood almost a full percentage point higher at 2.8 per cent. The Atlanta Federal Reserve argues that even the reduced estimate is far too high – it's expecting no growth at all for the first quarter.
For Canadian investors, the post-crisis era has proven it's been better to be late than early when investing in U.S. stocks dependent on a strengthening economy. Until a sustainable U.S. expansion is evident, investors should stay focused in secular, non-economically sensitive market sectors such as health care.
Follow Scott Barlow on Twitter @SBarlow_ROB.