At first glance, the numbers in the February unemployment report are spectacular. An estimated 192,000 jobs were added last month to nonfarm payrolls, compared with 63,000 in January, 152,000 in December and 93,000 in November.
There are lots of reasons to view the report positively, as Washington Post economics reporter Neil Irwin tweeted:
Drop in unemployment came about mostly for good reasons--more employed, fewer unemployed. Not people dropping out of labor force.
This is the best all-around jobs report in three years. Stronger job growth in March-May of last year, but that was temp census hiring.
But look closer at the report and there are some big unanswered questions, the most important of which was articulated in a research note this morning from Capital Economics: “How much of last month’s gain was a reversal of the severe weather impact in January?”
If the big jump in February was simply a bounce-back effect after people returned to work when the January snow started melting, then the labor market recovery isn’t as strong as it might have been if the freak weather wasn’t a factor.
There’s evidence that weather conditions did play a role. If you break the new jobs down by sector, the biggest gains were in construction, which was up 33,000 after falling 22,000 in January.
A better way to analyze the numbers may be to average the past three months of gains, which amounts to 135,000 new jobs a month — just barely enough to account for population growth.
That’s why the most common words economic analysts are using to describe the report on Friday don’t include spectacular, or anything close to that. They’re saying the numbers are just “decent.” Or “solid.”
“The February employment report was solid, but it fell well short of the blowout that some in the market were expecting,” Stephen Stanley, an analyst with Pierpoint Securities, wrote in a research note.
Connie Madon, writing in BloggingStocks, also sounds a note of caution, pointing out that “one month does not suddenly turn the economy into a boom. We would need six months of numbers around 200,000 to really make a dent in unemployment.”
The second part of the monthly Labor Department report involves a separate household survey that focuses on employment (as opposed to the headcount survey of companies that is used for the jobs numbers). This was better than forecast. Unemployment had been expected to inch up from 9 percent to 9.1 percent. Instead, it fell to 8.9 percent.
The New York Times’ Floyd Norris notes that “the last time the unemployment rate fell 0.9 percentage points in three months was in 1983. That was when the economy finally started to rise rapidly after the double-dip recessions of the early 1980s.”
Analysts are trying to reconcile the seeming discrepancy between moderately higher payrolls and the much more positive rapid decline in the unemployment rate.
“For four months now, the relationship between employer-reported payrolls and household-reported employment has diverged, a most unusual situation,” explained Guy LeBas, chief fixed income strategist for Janney Capital Markets.
Here’s LeBas’ theory:
As jobs become more plentiful, unemployed individuals are finding employment, causing both the firm and household-reported jobs growth. Individuals in the same household who hold multiple jobs are meanwhile cutting back, which results in a decline in firm-reported employment but no change in household-reported employment. In that sense, the household unemployment figures, which are improving more significantly than payrolls, arguably represent a more coherent picture of labor market health. In other words, the job markets may actually be trending a bit better than the most commonly-tracked monthly labor market metric suggests.
So, how does that bode for the rest of 2011?
Jon Ogg on 247WallStreet.com predicts that unemployment may fall to under 8 percent by the end of the year. On the other hand, he writes:
The sad part of the jobs data and unemployment data is that the workforce data keeps indicating a larger number of drop-offs from the workforce. The reality is that these still count “for the rest of us” and the employment situation is still quite far from robust.
And how will the jobs report affect the actions the Federal Reserve is taking to keep up the momentum in the economic recovery?
Analysts aren’t showing much consensus.
Here’s the view of Michael Gapen of Barclays Capital Research:
We do not see this report as causing the Fed to alter the stance of its asset purchase program as most FOMC members have said that they need to see much stronger job creation before characterizing the recovery as having taken hold. We continue to see little to change our view that the Fed will complete its intended $600bn in purchases of Treasury securities by the end of the second quarter.