The stronger-than-expected gain of 236,000 jobs and a four-year-low unemployment rate of 7.7 percent suggested an accelerating economy Friday. The question is whether politicians will ram a stick into the spokes of growth.
The jobs gains in February that were reported Friday exceeded analysts’ expectations, which were in the range of 160,000 to 180,000. Coupled with revisions to December’s and January’s employment numbers, they suggested a clearly improving labor market. They also highlighted, however, the risk that Washington’s wrangling over budget matters might thwart momentum in the economy.
“It certainly demonstrated the economy was gaining some momentum in February,” said Scott Anderson, senior vice president and chief economist for Bank of the West in San Francisco. “This is certainly going to be a report that is cheered by markets, and is certainly consistent with the decline in jobless claims that we’ve seen in recent weeks.”
The problem with Friday’s report is that a single month does not make a trend. The surveys that the Bureau of Labor Statistics used to gauge employment and unemployment were conducted in the weeks before Washington failed to stave off the sequester, $85 billion in federal spending cuts that affect many government agencies, including the Pentagon and defense contracts.
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“On net, today’s report shows stronger momentum in the economy, which will help cushion, but not entirely offset, the blow from the fiscal cuts,” Michelle Meyer, a Bank of America Merrill Lynch economist, wrote in a research note. “We maintain our view that the economy will hit a soft patch in the spring.”
Unpaid furloughs of government workers and layoffs at companies that contract with the federal government are likely to be noticed in April; the government report for that month comes in early May.
“I don’t think we’re completely out of the woods yet. I don’t think we’ve seen evidence of the sequestration in today’s report,” Anderson said. “It means the private-sector economy was on a stronger trajectory going into the sequestration cuts. . . . Certainly the economy was weathering the tax hikes at the beginning of the year better than expected.”
That’s a reference to the end of a payroll tax holiday, with the government again taking more out of the paycheck for retirement benefits. Economists thought that might reduce economic activity, resulting in a half percentage point shaved off annual growth. Economists also think that the budget sequester, if not reversed in coming weeks, will shave growth by anywhere from two-tenths of a percentage point to seven-tenths.
There weren’t many negatives in Friday’s report.
The unemployment rate fell by two-tenths of a percentage point in February to the lowest rate since December 2008. Hours worked by Americans ticked up by half a percentage point, an important indicator of an improving labor market. Even average hourly earnings rose by two-tenths of a percentage point, increasing consumer spending power.
Private-sector employment rose by 246,000 but another 10,000 lost government jobs, mostly at the state level, dragged down the overall jobs number. The strongest jobs growth last month came in the category of professional and business services, at 73,000 positions, reflecting an increase in better-paying white-collar jobs.
Construction employment rose by 48,000, suggesting that lost blue-collar jobs are returning as the housing sector appears to have bottomed and is climbing back.
“Employment gains were broad based, with construction employment kicking in solid increases over the last three months and with transportation being the only private industry to show a decline,” said a research note by RDQ Economics, a New York forecaster.
Stocks opened up sharply on the news, with the Dow Jones industrial average pushing higher into the nominal record territory it crossed earlier in the week.
“Stronger job growth + stronger workweek + lower jobless rate = Go America. Buy stocks and sell bonds,” Neil Dutta, the head of research for Renaissance Macro Research, said in a note to investors that declared that interpreting February’s report “is so easy a caveman can do it.”
It will take several months of strong hiring numbers to convince skeptics that the labor market is truly recovering. But a jobs creation number above 200,000 is one that both keeps pace with new entrants to the workforce and whittles down the unemployment rate. Job creation last year averaged about 183,000 a month, just enough to hold the jobless rate steady.
The Defense Department has announced that it will begin furloughing its 800,000-civilian workforce one day a week in April. This will show up as a drop in hours worked, and it will ripple through the economy as these workers spend less and save more, bracing for perhaps months of one day a week without pay.
Still, the solid hiring numbers for February help justify the strong gains in the stock market. Some critics have suggested that the Dow’s move into nominal record territory was akin to a sugar high and not based on economic fundamentals.
But a number of indicators this week gave justification for rising stock prices, which historically have reflected expectations about the economy’s performance six to 12 months ahead. A government report Thursday showed a steep drop in first-time jobless claims to levels last seen in 2008, and the Federal Reserve released data Thursday that suggest household wealth in America has returned to a pre-recession peak.
The Fed said household wealth equaled about $66.1 trillion for the last three months of 2012. That’s $1.2 trillion above the third quarter of last year, and about at the pre-recession peak. Rising home prices and soaring stock prices have boosted the net worth of Americans. The rich are more likely to have profited from stock prices, although many working Americans benefit through their 401(k) retirement plans. And increasing home values help all homeowners.
There were a few down notes in Friday’s report.
The long-term unemployed, more than 4.8 million Americans who’ve been jobless for half a year or more, rose, and they now represent about 40.2 percent of all the jobless. That’s up from about 38 percent of the unemployed in January.
And the labor force participation rate fell by a tenth of a percentage point in February, suggesting that the workforce shrank slightly last month.