It would take superspin powers to portray the March jobs report as anything other than a huge step in the wrong direction. The US economy added just 88,000 jobs last month, 95,000 in the private sector as public payrolls fell by 7,000. The official unemployment rate ticked down a tenth of a point to 7.6%.
1. That is a paltry number of jobs, more or less matching assumed labor force growth per month. So the economy must add at least that many jobs just to keep the labor market at current depressed levels. In other words, at 88,000 jobs a month the economy would never ever close the jobs gap.
2. The unemployment rate dropped because of a further decline in the labor force participation rate, now at its lowest level since 1979. If that rate were merely at March 2012 levels, the unemployment rate would have been 8.3%. At January 2009 levels, 11% (or 10.98%). While going back four years ignores demographic factors like baby boomer retirements, the aging of America doesn’t explain the entire drop. (Indeed, before the Great Recession, the Congressional Budget Office predicted 2013 labor force participation would be 65.2% (vs. 63.3% in March), assuming demographic changes.)
Factoring out the retirement issue might put the adjusted unemployment rate at 9.9%, says the economics team at Hamilton Place Strategies. Also, the employment-population ratio continues to bottom feed. (See above chart).
3. Looking at the long-term term trend, the three-month average rate of payroll growth is now 168,000 vs. 183,000 for all of 2012, and 175,000 for all of 2011. I think Barclays is about right in its analysis: “Our view is that the February employment report overstated strength in the labor market, and the March report likely overstates any weakness.” Yet the three-month average for this year is far below the first-quarter 2012 average of 262,000. Hardly a sign of strength.
4. The job market is still falling far short of predictions made by the Obama economic team back in 2009. Thanks to the $800 billion stimulus, the unemployment rate was supposed to have dropped to 5.1% by now (see at left)
5. So what’s the problem? The payroll tax hike? The sequester? (As IHS Global Insight notes: “It is hard to blame the sequester for March’s disappointment. Federal employment did drop by 14,000, but most of that was in the US Postal Service, which isn’t affected by the sequester.”)
I think the simplest explanation is that the economy continues to grow at a weak pace — though the first quarter might actually have been pretty strong — and the result is erratic job growth. The March number could get revised higher and in the end might not look so bad. There is certainly no reason for the Federal Reserve to back off its bond buying, and every reason for Congress to stop raising taxes and begin to implement a pro-growth agenda from high-skill immigration to cutting business taxes.