March’s Goldilocks Jobs Report Highlights Lukewarm Labor Market

 

Both the civilian labor force and total employment increased in March.

Another month has returned steady, but not great, job growth; after several months of slow job creation in December and January — when exceedingly cold temperatures kept consumers at home, blanketed construction projects with snow and ice, and caused supply-line disruptions for manufacturers — employers began hiring in February at a stronger pace, a pace that March nearly equaled. The 192,000 jobs added by employers to payrolls last month was a sign that the U.S. economy had withstood the difficult winter.

But that gain, while almost exactly in line with the 200,000 jobs expected by Wall Street, was hardly the early spring jump that many economists expected. Job gains were well below the 237,000 and 274,000 jobs added in October and November, respectively, before the cold weather began. However, the employment gains did catapult the labor market to an important milestone: The private sector has recovered all jobs lost in 2008 financial crisis. Although, there are now 85,000 fewer government jobs than there were twelve months ago.

“This employment report should help put to rest fears that the economy was stalling as we entered the new year,” tweeted Justin Wolfers, an economics professor at the University of Michigan. “We’re still growing, baby.” Yet, he also noted that “equally, employment growth continues on [its] post-recession trend, but steadfastly refuses to take off to provide the sort of growth we need.” Mitigating the labor market success that is the erasure of the recession-era jobs hole is the fact that the U.S. adult population has grown by 14 million since the recession began, meaning the U.S. job market is not even close to fully recovered on a per-capita basis.

Beyond achieving that important benchmark of labor market health, the jobs report can be characterized in Goldilocks-like terms; it was neither too hot or too cold. But that is not to say that the labor market is “just right.” Rather, that characterization is meant to suggest that at first glance numbers are strong. The 192,000 jobs added to payrolls in March, the average of 183,000 created per month over the past twelve months, and the total 2 million jobs added over the past year is strong. And, at that pace, the labor market is not so weak that the Federal Reserve will suspend the tapering of its monetary stimulus program that began last December. Yet, the job growth  was not where near strong enough for the central bank to increase the speed at which its monthly bond purchases are decreasing or lift the federal funds rate from near zero, where it has remained since late 2008. As Fed Chair Janet Yellen indicated in both a press release following the policy maker’s Federal Open Market Committee meeting last month and at a March 31 conference in Chicago, the labor market has much recover left to accomplish.

 

“The numbers of people who have been trying to find work for more than six months or more than a year are much higher today than they ever were since records began decades ago,” Yellen said Monday in Chicago. “While there has been steady progress, there is also no doubt that the economy and the job market are not back to normal health.” The problem is slack in the economy and the labor market. In Chicago, she highlighted evidence showing that there remains considerable slack, meaning there are significantly more people willing and capable of filling a job than there are jobs for them to fill. The high number of underemployed Americans, the little leverage workers have to demand raises, the extraordinary numbers of long-term unemployed workers and, the decreasing labor force participation rate are all evidence of the the slack job market.

In March, the unemployment rate held steady at 6.7 percent. However, while that figure has steadily declined from the 7.5 percent rate recorded in March of last year, it hides a great number of the labor market’s problems.

As Wolfers commented in another Friday morning tweet, “don’t let the ‘no news’ headlines distract you from the most important fact about the labor market: 10.5 million people remain unemployed.” A particularly concerning component of that number is that of the long-term unemployed Americans. Relatively unchanged from February, 3.7 million Americans have been with employment for twenty-seven weeks or more. The number of long-term unemployed has declined by 837,000 over the past year, but those individuals still account for 35.8 percent of the total unemployment rate. Even though numbers are declining from the recession high of 6.8 million long-term jobless, the current situation has been termed an “unemployment crisis.”

Economists have postulated that many of those individuals who have been unemployed for six months or more will likely never hold steady jobs again as employers are seeking out workers with more relevant job skills. “These workers find it exceptionally hard to find steady, regular work, and they appear to be at a severe competitive disadvantage when trying to find a job,” Yellan stated. Furthermore, the number long-term unemployed has declined not because workers have found jobs but because they have dropped out of the labor force and therefore are no longer counted in official tallies.

The total number of unemployed Americans grows larger than the figure the jobless rate suggests when you consider several other factors. “When the recession began, 66 percent of the working-age population was part of the labor force. Participation dropped, as it normally does in a recession, but then kept dropping in the recovery,” explained Yellen. “It now stands at 63 percent, the same level as in 1978, when a much smaller share of women were in the workforce. Lower participation could mean that the 6.7 percent unemployment rate is overstating the progress in the labor market.” To be exact, in March, the labor force participation rate stood at 63.2 percent, while the employment to population ratio was 58.9 percent.

Even those Americans who have jobs factor into unemployment crisis. Because of the scarcity of quality and full-time jobs, a great number of workers are underemployed. The number of persons employed part-time for economic reasons — who are known as involuntary part-time workers — was little changed at 7.4 million in March.

With job seekers still dropping out of the labor force and millions of workers underemployed, employers have not pressured to increase wages. The decline in unemployment has not helped raise wages for workers as in past recoveries. In March, average hourly earnings for all employees on private nonfarm payrolls edged down by one penny, to $24.30, following February’s 9 cent increase. Over the past year, average hourly earnings have only increased 49 cents, or 2.1 percent, which is a very small increase by historical standards.

Because the cold weather has finally abated, March was the first so-called clean jobs report in months, meaning for the first time since November, economists have a clear idea of the true position of the labor market recovery. While the month did not see the gains some analysts were expecting, the hope is that April will see more improvement. “Assuming that the weather returns to seasonal norms in April, the return of the people who were unable to complete any paid work during the winter will boost the level of employment and could generate a very big rise in payrolls in April,” Capital Economics’s senior U.S economist Paul Dales said in a research note obtained by Politico.

But Republican politicians took the opportunity to criticize the Obama administration’s policies for failing to create jobs. “Regardless of whether the monthly jobs reports show encouraging growth, or disappointing setbacks, nobody can or should be satisfied with the recent status quo,” House Majority Leader Eric Cantor (R-Va.), said in a statement. “America doesn’t work when hardworking people can’t find the jobs or hours they need to make ends meet. The House has passed bill after bill that helps working middle class Americans get the skills they want, the jobs they desire and the hours they need and yet they all remain stalled in the Senate’s legislative graveyard.”

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