Government Spending Cuts Contribute to Slower Growth
Michael Kelly let go of another employee last month.
As chief executive of a small Michigan military contractor, Nanocerox, he had already cut his work force by one-third. But it was not enough. And if the government spending cuts mandated by Congress continue, he said, more people will go in the coming months.
The squeeze Mr. Kelly is facing is one reason markets are jittery about what the Labor Department’s latest report on unemployment and job creation will reveal about the economy on Friday. After a strong start to the year, several economic indicators beginning in March have pointed to much slower growth, largely because of the fiscal headwinds from Washington, economists say.
Job cuts like the kind at Nanocerox remain the exception, rather than the rule. On Thursday, the government said weekly unemployment claims were at a five-year low.
The problem is that companies have not been hiring. This week, a survey of private sector hiring in April came in well below expectations, while indications for everything from retail sales to manufacturing have also been soft recently.
Whatever the data ultimately show for April, economists like Diane Swonk, chief economist for Mesirow Financial in Chicago, say the economy would be showing much more momentum if it were not for the combination of higher payroll taxes that went into effect in January, as well as the process of automatic spending cuts known as sequestration that began to bite last month.