The Employment Situation for February – No Better, No Worse, Not Good Enough

Today’s Employment Situation report for February from the Bureau of Labor Statistics (BLS) had headline numbers of a 192 thousand increase in total nonfarm payroll employment and a reduction in the unemployment rate from 9.0 to 8.9 percent. That might seem like solid improvement over January, particularly given that the private sector added 222 thousand to payrolls, but these numbers are still pretty weak compared to where we need to be.

First, the difference between the 222 thousand jobs private payrolls added and the 192 thousand increase in total nonfarm payrolls is the 30 thousand jobs state and local governments cut. State and local governments have shed roughly 400 thousand jobs from the peak in 2008 and with state budgets in the shape they are in this will only continue. And the private sector is not poised to absorb these workers. Instead, private sector job growth will be undermined as school years are shortened, teachers are sacked, and more generally the public sector pulls back on payrolls and the purchases of goods and services.

Second, the labor force has shrunk by conservatively 1.26 million since its peak in late 2008. If these workers had all returned to the labor force in February the unemployment rate would be 9.7 instead of 8.9 percent. Typically, the unemployment rate ticks up early in economic recoveries as discouraged workers return to the labor force, but according to the household survey, the labor force increased by only 60 thousand in February. So there are still 1.20 million people who were employed or willing to work two years ago who aren’t accounted for in today’s decline in the unemployment rate.

More generally, during recoveries the economy needs to generate enough new jobs to accommodate an expanding labor force and bring the unemployment rate down. During the 1990’s, the labor force grew by 139 thousand per month on average. From 2001 to 2008, the figure was 122 thousand. Against this background, 192 thousand falls short of accommodating new entrants, re-entrants and those currently unemployed and seeking work.

And so far the pace for January and February isn’t an improvement over last quarter. Total nonfarm payrolls increased by 139 thousand per month from October to December, compared to 128 thousand in January and February. For private payrolls, the comparison is 146 thousand per month last quarter versus 145 thousand so far.

Based on February’s labor market composition it would take 5.2 million additional jobs to bring the unemployment rate down to 5.5 percent. At 200 thousand jobs per month or 2.4 million per year, we are still more than two years away, and that’s holding today’s labor force constant. Combine this with last week’s downward revision to fourth quarter GDP growth from 3.2 to 2.8 percent and labor market recovery looks even further out in the future.

The numbers from today’s employment report just aren’t good enough.