February Employment Report

Joel L. Naroff
President and Chief Economist

INDICATOR: February Employment Report

KEY DATA: Payrolls: 192,000; Private Sector: 222,000; Unemployment

Rate: 8.9% (down 0.1 percentage point)

IN A NUTSHELL: “The labor market may not be great just yet but it is firming and that is good news for job seekers.”

WHAT IT MEANS: Economists always look forward to the employment report release and the wait was worth. The economy added jobs at a very solid pace in February powered by strong private sector hiring. The gains were widespread with manufacturing, services and even construction adding to payrolls. Retail was weak but some of that may have been due to the unseasonal as well as brutal weather in places. Normal early spring activity was likely put off. Firms are looking to temp workers again and that is a sign they are ready to get back into the hiring game. The weak link is the state and local government sector, education in particular. Apparently, the path toward global economic domination is through cuts in the education system. And I always thought education was a fundamental part of the nation’s infrastructure. Silly me. Hours worked increased as did wages, though hardly as fast as inflation. Income may be up but when adjusted for the surges in food, energy and other goods it is likely to be down. The best news in the report was the drop in the unemployment rate, to the lowest level since April 2009. I had been expected it to rise as discouraged workers come back into the workforce. But while the labor force did rise, more jobs were created so the rate went down. Don’t be surprised if we get periodic up ticks in the rate going forward as there are lots of dropouts who are likely to show back up over the next couple of years.

MARKETS AND FED POLICY IMPLICATIONS: This was a very good report that indicates the labor market is coming back. Yes, some of the rise can be ascribed to a rebound from the desultory January increase. Last month’s gain was revised upward but 73,000 is still not a great number. In addition, since a job is a job is a job, the cuts in the public sector have to be replaced before any economy-wide payroll increase can occur so the pressure is even greater on the private sector to hire more robustly. That is a concern as rising energy, food and other goods costs will likely slow growth during the first half of the year. Nevertheless, when you look at the totality of the economic data released this week, it is clear that the Great Recession is becoming a thing of the past. Unfortunately, the Great Recovery is not here and indeed may not happen as long as rising prices, limited credit availability, large numbers of foreclosures and high commercial vacancy rates constrain spending and construction. Those are the factors that seem to dominate Mr. Bernanke’s thinking and why he is so set on keeping rates low and liquidity high “for an extended period”, whatever that means. As for investors, it is oil vs. growth and petroleum may be the slippery slope that greases the wheels of a market correction (Sorry about that).

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