The economy added 236,000 jobs in February and the unemployment rate fell to 7.7 percent, the lowest of the Obama presidency. The labor participation rate and the combined underemployment and unemployment rate (U-6) edged down only 0.1 percent.
Doug Holtz-Eakin of the conservative American Action Forum in an e-mail release explains:
There are three main reasons the champagne should remain corked:
• Labor force participation fell by 0.1; suggesting faith in the recovery is not yet firmly rooted.
• It’s only one month. It’s only one month. It’s only one month.
• Even after this report, unemployment is high and will remain so for years.
But this is good news, very good news, on several fronts. Increased employment is itself a confidence builder, as we are seeing on the stock market today, where we are heading toward another record high.
This, conservatives will hasten to add, was accomplished without the “stimulus” plans the president has been hawking for months. Added employment will improve the revenue picture and in turn help in the budgeting process.
James Pethokoukis of the American Enterprise Institute adds some words of caution:
In January 2009, Team Obama economists predicted that the unemployment rate by 2013 would be 5.1% (and the economy would be booming at 4% annual growth). Heck, even without the stimulus, they thought the jobless rate would be down to 5.5%. That’s a big miss.
The labor force participation rate fell again as potential workers stopped looking for work. If the LFP rate was just where it was a year ago, in February 2012, the official unemployment rate would 8.3%. And if the LFP rate was where it was in January 2009, the unemployment rate would be 10.8%. Does the aging of the US workforce make that 2009 number less relevant? Probably. But have demographics changed that radically over the past 12 months? Doubtful. . . .
The bottom line here is that the US labor market is treading water at best, with the falling labor force participation rate number hiding that sorry reality. To get excited about these jobs numbers really is to embrace the slow-growth New Normal reality.
So how should lawmakers react? For starters, they can get serious about tax reform, which will spur further growth. The best reason for not giving in on closing tax loopholes in the last face-off with the White House was to husband these tax “expenditures” to be used in trade for rate reduction, that in turn will spur more growth, job creation and revenue for the feds. Second, it makes the GOP’s case for some spending restraint easier. In fact, the GOP has done a good job under the circumstances restraining the liberals’ spending addiction, as Quin Hillyer and others have pointed out. They can continue on that road without the attacks that they are wrecking the economy (at least not convincing ones).
With all the talk of gridlock, the crisis atmosphere and the screeching on right and left, wouldn’t it be remarkable if as the GOP dug in its heels on spending restraint, the economy (albeit years too late) began to struggle to its feet, and the investment and hiring outlook improved we could see a budget passed? My, oh my. That — with some tax and entitlement reform thrown in? — might be too much to hope for.