Unearned Optimism (Continued)

According to the BLS, employers added 227,000 jobs in February. This was slightly above market expectations, and was slightly higher than the ADP number released on Wednesday. Both December and January were revised upwards, to 223,000 and 284,000, respectively. There’s lots of interesting information in the jobs report that’s not fully captured by the headline numbers, so let’s dive in.

First thing’s first: Was it a good jobs report? It was . . . OKAY. I suspect we have gotten used to really piss-poor numbers and false-starts (a product of the worst recession since the 1930s). Brad DeLong pretty much summarizes the entire jobs report in the subject line of his blog post: “IN A NORMAL RECOVERY, THIS WOULD BE A DISAPPOINTING PAYROLL REPORT. BUT IN THIS RECOVERY THIS IS VERY NICE TO SEE.

The Bad News:

There are still 12.8 million unemployed persons, and 8.1 million workers who are part-time for economic reasons. There are 1 million discouraged workers not currently in the labor force. Add these numbers together and consider what 227,000 jobs in a month actually means. We have to do more.

 The OK News:

The prime-age employment-population ratio (chart above), after several months of increase, did not change from January to February. The headline unemployment rate did not fall or rise. More on that below.

The Good News:

1. Job growth has been consistently over 200,000 since December.

2. Something to note is that even if the headline unemployment rate does not fall, we could still have a good month. The unemployment rate is just one measure of the health of the labor market, but lowering the rate is not a goal unto itself. As the labor market recovers, people who had exited the labor force due to the dearth of jobs will likely start looking for work again, thus putting upward pressure on the unemployment rate even as the number of jobs created puts downward pressure. In this sense, having job creation but an unemployment rate that’s not falling could actually be a good thing at this point in the recovery, as it signals people feel confident enough to start looking for work again. The labor force participation rate increased slightly this month. Ezra Klein has more on this.

To bring this point home, if we consider the broadest of unemployment rates (commonly called the U6 rate), which includes workers who are part-time for economic reasons as well as those who are marginally attached to the labor forced (discouraged workers), we have a rate that is falling very quickly. The following chart plots the headline unemployment rate (right axis, red line) and the U-6 rate (left axis, blue line):

All in all, this was a decent jobs report, and the last three months taken together have been good. But it’s not enough, and it’s not yet clear to me that it is fully self-sustaining. This will be a difficult year with Europe now in a “mild” recession, China growing at a slower rate, and oil prices at very high levels. I would need to see two to three more months of solid employment numbers before feeling “good” about the recovery. Rather than simply hoping things get better, the federal government could be doing much to improve the situation. Congress could act now. But it doesn’t look like that will happen this year.


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