(MoneyWatch) Investors are jittery about the upcoming April jobs report and with good reason: In March, the economy added only 120,000 non-farm jobs, far below the previous three months' average of 239,000 per month. Additionally, the weekly claims data has deteriorated over the past month: The four-week average has increased to 381,750, the highest level in three months. Analysts believe that April job creation was 160,000 and that the unemployment rate held steady at 8.2 percent.
Why aren't companies hiring more? The answer can be seen in the latest GDP report. In the first quarter, the U.S. economy grew at an inflation-adjusted annual rate of 2.2 percent, lower than the expected 2.5 percent; and down from the fourth quarter's 3 percent rate, but up from the total 2011 rate of 1.7 percent.
One upside surprise from the report was consumer spending, which increased at a 2.9 percent rate - the fastest pace since the fourth quarter of 2010. That sounds great, until a cursory drill-down of the data showed that a good chunk of that spending came at the expense of savings, which dropped to annual rate of 3.9 percent from 4.5 percent. So much for the new-found, post-recession parsimony.
While the consumer spending number was pretty good, it's simply not strong enough to encourage companies to start hiring with gusto. The steady, mediocre expansion (in the 11 quarters since the end of the recession, annual GDP growth has averaged 2.4 percent, versus a post-World War II average of 3.3 percent) has amounted to decent job creation, but not enough to put 12.7 million Americans back to work any time soon. The economy has added a total of 3.58 million jobs since employment bottomed in February 2010, BUT there are still 4.8 million fewer private sector jobs now than when the recession started in 2007.
The bottom line is that companies have figured out how to do more with less, and will only begin hiring when demand picks up and forces them to do so. Until then, optimists will note that the economy is far better off than it was back in 2009, while pessimists will worry that we have a long way to go. Both are correct.
Perhaps the new rallying cry for the U.S. could be "at least we're not Europe!" In its FOMC statement, the Federal Reserve warned that "strains in global financial markets continue to pose significant downside risks to the economic outlook." Nowhere is that more evident than in Spain, where the government reported that the eurozone's fourth-largest economy suffered with 24.4 percent unemployment in the first quarter, the highest level in two decades. Separately, Standard & Poor's downgraded Spain's credit rating by 2 notches, citing budget deficit worries and ailing banks.
Investors brushed off the bad news from Europe and the less-than-stellar GDP report and instead focused on earnings. The S&P 500 earnings growth rate in the first quarter is 7.1 percent, according to Thomson Reuters - even if you remove Apple from the equation, the growth rate is 4.7 percent. The Dow and S&P 500 saw their biggest weekly gains since March 16.
-- DJIA: 13,228, up 1.5% on week, up 8.3% on year (up 0.1 percent in April)
-- S&P 500: 1,403, up 1.8% on week, up 11.6% on year
-- NASDAQ: 3,069, up 2.3%, up 17.8% (biggest weekly rise in 3 months)
-- June Crude Oil: $104.93, up 1% on week
-- June Gold: $1664.80, up 1.3% on the week
-- AAA National Average Price for Gallon of Regular Gas: $3.82
THE WEEK AHEAD: In addition to the April jobs report, investors will look to manufacturing data and car sales to help determine whether the economy is downshifting into a lower gear or merely idling before returning to a faster pace.
8:30 March personal income and spending
9:45 April Chicago PMI
Avon, BP, CBS, Pfizer
Motor vehicle sales
10:00 April ISM manufacturing
10:00 March construction spending
CVS, Time Warner, Visa
7:00 Weekly mortgage applications
7:30 Challenger job cut report
8:15 ADP Private employment report
10:00 Factory orders
ECB interest rate decision
8:30 Weekly jobless claims
8:30 Q1 productivity and costs
8:30 April jobs report (Consensus: +160K jobs, unemployment rate 8.2%)
Berkshire Hathaway annual meeting