Tea Leaf: Jobs creation provides missing piece to U.S. economic puzzle

Published: Tuesday, March 8 2011 3:07 p.m. MST

The missing piece of the American economic puzzle finally emerged during February, with solid gains in new job creation. Gains of the two prior months also saw sizable upward revisions.

Economic data of the past six months — including resurgence in U.S. manufacturing, rising confidence levels, improving retail and auto sales, declining claims for unemployment insurance and more impressive performance of the nation's service-providing sector — have been met with substandard job gains. Not so this time around the economic cycle.

The American economy added 192,000 net new jobs during February, matching economists' forecasts. In addition, previously reported job gains during December and January were revised to show 58,000 more people at work. Just over two-thirds of the industries measured by the U.S. Labor Department added jobs in February, the most widespread gain in 13 years.

Note regarding the first chart: the big surge in American employment in early 2010 and the decline a few months later involved nearly one million temporary Census jobs.

Down … again!

In addition, the nation's unemployment rate unexpectedly declined again from January's 9 percent level to 8.9 percent in February, the lowest level in nearly two years. The nation's unemployment rate — as high as 9.8 percent just last November — has now fallen nearly a full percent in the past three months, the most rapid decline in nearly 28 years, according to cnnmoney.com.

As noted before, however, such a rapid decline could partially reverse itself in coming months, especially now that solid job data has been reported. Tens and hundreds of thousands of former workers who left the labor force during the past 12-24 months because of bleak job prospects — and were no longer counted as unemployed — could now re-emerge. Unless and until they find a job, they will now be counted as unemployed.

Another reason for the sharp decline in the jobless rate has been more impressive job gains as derived from the "household" survey, the source of the unemployment rate. This smaller survey has reported the addition of 664,000 jobs over the past three months. By comparison, the larger "establishment" survey has reported the addition of 407,000 net new jobs over the past three months. The smaller survey can be more accurate at times of transition to stronger, or weaker, job gains as it has a greater focus as to what is happening with small-business startups and shutdowns.

Trends

Two trends continued in February, with the likelihood that such trends will be noteworthy during much of 2011 and perhaps 2012. The nation's private-sector employers added 222,000 net new jobs during February, while state and local government employment fell by another 30,000 positions.

Private companies will very likely continue adding to payrolls at more impressive rates than has been the case over the past two years. Corporate profit levels have risen significantly, while productivity gains tied to solid investments into technology have largely run their course. In summary, more bodies are simply needed.

The second is that employment within the state and local government sector will continue to decline, a result of severe weakness in state and local tax revenues of the past three years. State and local governments have now eliminated 377,000 jobs since peaking in September 2008, according to nytimes.com. Payments to state and local governments as part of the massive $850,000,000,000 stimulus program of roughly two years ago are now gone. Funds to maintain employment levels are nowhere to be found.

The construction ticket

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