Labor Market Survived Winter, But Job Growth Was Still Sluggish
Yes, job creation was stronger-than-expected in February, despite the exceptionally cold and wintery weather experienced by much of the country. The Department of Labor announced Friday that the U.S. employers added 175,000 jobs to payrolls last month — a pace far surpassing both December and January, when payrolls expanded by 84,000 and 129,000 jobs, respectively. While the most recent Employment Situation Report upwardly revised both of the previous two months’ figures, hiring was still hobbled, and February’s gain represented a significant acceleration in job creation. It also surpassed the 152,000 job additions economists had forecast.
It’s just a steady-as-she-goes recovery. Not fast enough, but not easy to derail. Wish it were faster, but we are making inroads into unemp.
— Justin Wolfers (@JustinWolfers) March 7, 2014
Yet, as the tweet from Justin Wolfers — a senior fellow at the Brookings Institution — indicates, the recovery of the labor market is progressing, and that recovery is strong enough to withstand such hurdles as the polar vortex. But while “inroads” into unemployment are being made, progress is still slow. In other words, job growth may no longer be bad, but it is sluggish. February’s job growth of 175,000 is approximately enough to keep pace with the growing population, and job growth has yet to return to the average of 200,000 jobs per month added from June through November. Economists say that 200,000 jobs per month must be added in order to attain sustainable job growth. The economy lost 8.7 million jobs during the financial crisis, and as of February, approximately 8 million have been recovered
But, the unemployment rate ticked up to 6.7 percent — a 0.1 percentage point gain and the first increase since December 2012. Economists had expected the unemployment rate to remain at 6.6 percent.
Ahead of the Friday data release, economists were expected to write off relatively weak job numbers on the weather. Indeed, the weather was poor during the week of the mid-month survey of households that the Labor Department uses to tabulate the number of workers receiving pay. The survey week, which ended February 15, was the coldest second week of February since 2011, according to weather-data provider Planalytics. Plus, the South Atlantic region of the United States experienced the most snowfall since 1983 when New England was hit with the most snow in 20 years. The cold temperatures and snow storms followed what was the most frigid January in three years.
As the Labor Department noted in the Employment Situation Report, “severe winter weather occurred in much of the country during the February reference periods for the establishment and household surveys,” and likely weighed on hiring as it has for the past several months. But that raises an important question: if the weather had been warmer, would the headline number been higher? Even if the weather is completely to blame, and no underlying problems are impacting the jobs recovery, the fact remains that the U.S. economy is weak enough that several snowstorms can blow it off course.
Friday’s numbers did fuel the debate over whether low job creation was the result of slowing economic growth or poor weather. “Seeing as how the report is better-than-expected, those worried about an economic slowdown will have to wait another month for corroborating labor market data,” BTIG chief strategist Dan Greenhaus told the Wall Street Journal. But still, there was likely enough strength in the jobs report to keep the Federal Reserve on course to scale back its month bond purchases by another $10 billion to $55 billion. “This bodes well for the economy since there were massive headwinds,” Sarhan Capital chief executive Adam Sarhan told Reuters. “This report plays perfectly into the Fed’s script of tapering.”
More important to economists than the headline numbers is the so-called guts of the report: the labor force participation rate, the type of jobs being created, and the degree of wage growth.
The unemployment rate declined for the right reason in January; more people began looking for work last month, a notable change for a labor market often characterized in recent months by its high number of disheartened workers. Since October, the unemployment rate has fallen from 7.2 percent, largely because a high number of disheartened workers have dropped out of the labor force. As a result, the labor force participation rate — the share of working-age Americans who were employed or looking for work — fell to a several-decades low. The fact that more people began looking for work in January was a sign of optimism, and some of those job hunters found employment, which contributed to the percentage point decline in the unemployment rate. From December’s 6.7 percent, the unemployment rate fell to 6.6 percent — the lowest rate since October 2008.
In February, the jobless rate bounced back up to 6.7 percent as more workers joined the labor force, which is a further sign of health. The number of unemployed Americans increased marginally last month, but the number of employed Americans also rose. The labor force participation rate increased by 264,000, and that growth suggests those Americans who had given up on find employment began looking again. Still, the labor force participation rate held constant at 63 percent — near a three-decade low.
Factoring in population growth, economists have calculated it will still take years for the labor market to return to pre-recession health when the unemployment rate was between 4 percent and 5 percent.
The primary employment gains came from the service sector, including the 79,000 jobs added by professional and business services. The construction industry — which was severely affected by the weather — added 15,000 and food services contributed 21,000, while manufacturing jobs remained unchanged and employment in retail dropped by 4,000.
Friday’s Employment Situation Report also showed that average wages increased, rising 9 cents to $24.31 an hour in February. That gain may seem negligible, but it was the largest monthly wage increase recorded in more than two years. That is good news for the U.S. economy as consumer spending accounts for approximately 70 percent of gross domestic product. “Rather than gains in equities providing impetus for the wealthy to spend, stronger wage growth will help boost spending across all income groups,” Morgan Stanley economist Ellen Zentner told CNN. “This will be a key underpinning for consumer spending and economic growth this year.”
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