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Posted: March 10, 2011

The final piece of the economic puzzle

...falls into place

Jeff Thredgold

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.

Down...Again!

In addition, the nation's unemployment rate unexpectedly declined again from January's 9.0 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.

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 additional 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.

Payments to state and local governments as part of the massive $850 billion stimulus program of roughly two years ago are now gone. Funds to maintain employment levels are nowhere to be found.

The Construction Ticket

An expected offset to state and local employment weakness later this year and in 2012 and (hopefully) beyond should be a modest resurgence in residential and commercial real estate construction employment. Widespread weakness of the past four years in both sectors should finally give way to rising new construction activity.

Such gains will be most welcome as the unemployment rate in the construction sector is estimated at 21.8 percent, the highest of any industry. The construction sector actually added 33,000 net new jobs during February, the largest one-month gain in nearly four years.

Other Detail

The nation's goods producing sector added 70,000 net new jobs in February, led by the 33,000 rise in construction jobs. The manufacturing sector added an identical total, with the rise of 97,000 net new manufacturing jobs the strongest three-month gain in 16 years. Manufacturing sector unemployment is now estimated at 9.9 percent. Mining and logging added another 4,000 jobs.

The nation's much larger service providing sector added 152,000 net new jobs in February, led by the addition of 47,000 new jobs in the professional & business services arena. Education & health services added 40,000 net new jobs, while transportation and warehousing added 22,000 jobs. Leisure & hospitality added 21,000 net new positions, while other services added 14,000 jobs. As noted earlier, government loss 30,000 jobs, all in the state and local sector.

More Numbers

13.7 million people are now counted as unemployed, down 1.2 million from one year ago

The average duration of unemployment has risen to an all-time high of 37 weeks. Many of these are older workers who may at some point throw in the towel and leave the labor market all together.

Men bore the brunt of millions of job losses, primarily in construction and manufacturing, during 2008 and 2009. However, the share of men with jobs has risen during the past year while the share of women with jobs declined. The share of women who were working declined to 53.2 percent of all women in February, the lowest in 23 years

The "underemployment" rate, which includes the unemployed, those working part-time who would prefer to work full-time, and those who have left the labor force but would accept a job if one were offered, declined to 15.9 percent in February, the lowest since April 2009.

The number of people losing their jobs fell to 1.1 million since November, the largest three-month decline since the U.S. Labor Department began tracking that measure in 1967.

Back On Track?

One good month does not a trend make. However, there is reason to believe that more solid job gains should become the norm-rather than the exception-in coming months. Now if little things like Middle Eastern and Northern African political instability, oil prices, European debt issues, the U.S. fiscal challenge, and any other yet unknown shocks to the economy would just behave themselves...
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The Tea Leaf is a weekly economic and financial update by Jeff Thredgold, economist for Vectra Bank Colorado. He has been writing an economic update every week for the past 31 years and is the only economist in the world to have received the designation of CSP, or Certified Speaking Professional. Republished with permission from the Tea Leaf by Jeff Thredgold, whose site address is www.thredgold.com/html/leaf.html.
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