The disappointing employment report: Will job creation improve in coming months?

(MoneyWatch) The recovery from the recession continues to be slow. There is some hope that the recovery will accelerate in coming months, but overall the signs are not encouraging.

According to Friday's employment report, the economy created 115,000 jobs in April. That's enough to keep up with population growth, but it is not enough to make much if any headway toward reemploying the millions of people who lost jobs during the recession. Even at much higher levels of job creation, e.g. 250,000 jobs per month, it would take just under two years to reach 6 percent unemployment, according to the Atlanta Fed's job calculator. To reach 6 percent in one year requires 350,000 jobs per month. At the present rate of 115,000, it would take more than 15 years.

Thus, we need an acceleration in job creation to recover in an acceptable amount of time. Should we expect that acceleration? Are higher rates of GDP growth and hence job creation just around the corner? The numbers are not encouraging. Job creation was 275,000 in January, 259,000 in February, 154,000 in March, and 115,000 for April, so we are headed in the wrong direction. Some of that may be due to good weather in January and February shifting activity forward, i.e. higher than usual job growth in the first two months balanced by lower than average in the second two. But even so, the average over the four months is still too low, and the trend is worrisome. Will the trend be reversed and the average driven higher? Unfortunately, when the components of GDP are examined, it's hard to see where the needed acceleration in the rate of job creation will come from.

Unemployment rate drops, but job stagnation continues

GDP can be divided into four parts: consumption, investment, government spending, and net exports. Consumption has been relatively strong in recent months, but some of this strength has been driven by falling savings rates and increased borrowing. Thus, there is not much room for further growth. Business investment has also been surprisingly strong during the recovery, and it has been growing at pre-recession rates in recent months. With growth so strong already, further increases are unlikely. Government spending could provide a boost, but with an austerity minded Congress and political gridlock standing in the way of more action from fiscal policy, there is very little chance that government will come to the rescue. And with the troubles in Europe, questions about China's ability to continue its remarkable growth rates, and the fact that higher oil prices cannot be ruled out, there's not much hope for an acceleration in net exports either.

But there is one sector that hasn't been mentioned, housing. In the past, residential investment has been a leading sector during recoveries, and one of the reasons for the slow recovery this time around is the low levels of residential investment. However, and I say this cautiously, there may be some hope that this sector has finally bottomed out and that housing investment could pick up over the next year or so. If so, and housing analysts such as Calculated Risk believe that things are about to turn around, that could provide the needed boost to GDP growth and employment.

Overall, this is a disappointing report. Job creation is not as strong as it needs to be, there are signs that workers are becoming even more discouraged than they already were, and while there is some hope that housing will come to the rescue, there's little else to indicate that an acceleration of the recovery is just ahead.