The recent steep decline in the nation’s unemployment rate has been as surprising to many forecasters as it has been politically beneficial to President Obama, and some warn that the progress could quickly lose momentum.
The nation’s jobless rate dropped from 8.9 percent in October to 8.3 percent in January, a remarkable improvement that some economists say has not been matched by more modest progress in other parts of the economy.
Economic growth has been tepid. And even if it picks up, its effect on lowering the official jobless rate will not be immediate. The nation’s overall labor force has shrunk in recent years, meaning that millions of Americans will probably resume looking for work as things improve, pushing the unemployment rate back up. Also, 5.5 million Americans have been out of work for six months or more, and there are nearly four unemployed people for every job opening in the country.
“The job market is far from normal,” Federal Reserve Chairman Ben S. Bernanke said on Capitol Hill last week. “Continued improvement . . . is likely to require stronger growth in final demand and production.”
Economists are predicting that the federal government’s February unemployment report to be released Friday morning will show that the nation’s jobless rate didn’t change, as the improving job market encouraged more people to start looking for work again.
The jobless rate is one of the most closely watched indicators of the recovery. Its improvement has been accompanied by an uptick in Obama’s approval ratings. Political analysts point out that the improvement complicates the Republican critique of the president’s economic stewardship, as voters historically have been most sensitive to the direction they perceive the economy is moving.
“You might say unemployment is still high, but if it is going down, that is great for the incumbent,” said Charles Prysby, a University of North Carolina at Greensboro political scientist who studies voter behavior.
But some economists are predicting that the recent rate of improvement in the job market will prove unsustainable, which could lead to a reversal of the president’s recent political fortune.
“We don’t have unlimited gains in here,” said Steven Ricchiuto, chief economist for Mizuho Securities. “We’re not really pushing this economy . . . beyond normal levels of improvement.”
According to consulting firm Challenger, Gray and Christmas, the number of planned layoffs announced in February fell to 51,728, down 3.3 percent from the previous month. Downsizing in the government tapered off, while layoffs in consumer-product and transportation companies picked up.
Chief executive John Challenger said that although the results indicated a decent month for job retention, he is worried that the cuts in consumer-centered sectors could signal a pullback to come.
“These are strong indicators of economic health, especially as it relates to consumer spending,” he said. But “both sectors are undoubtedly feeling the impact of rising fuel prices as heavy users of fuel, but also from their dependency on consumers, who are being forced to spend more on gasoline and less on the products and services provided by these firms.”
J.P. Morgan economist Michael Feroli said in a research note that the Labor Department’s statistical methods overstated the recent improvement in the job market.
He said the seasonal adjustments that the department made to the data may not fully account for the economic disruption caused by the recession, particularly in late 2008 and early 2009. The effect, he said, was for federal statistics to overstate the strength of the job market in the past two winters and understate economic performance in the summer.
Feroli added that the statistical quirks only magnified real softening in the economy in the summer. “The seasonal bias has not been the dominant reason for the summertime disappointments over the past two years,” he wrote.
Tom Nardone, an associate commissioner at the Bureau of Labor Statistics, would not respond directly to Feroli’s assertion. But he stood behind the bureau’s work, saying that it makes statistical adjustments it feels are appropriate.
Other economists are more hopeful about the economy’s direction. They point out that the stock market, manufacturing output and consumer confidence have improved.
The ADP National Employment Report released this week showed that private firms added 216,000 positions in February, most significantly in small businesses. Macroeconomic Advisers, which helps produce the report, anticipates the national unemployment rate will end 2013 at 7.4 percent. “The U.S. is still seen as mostly muddling through in 2012,” the company said in a research note.