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March 8, 2013

The Employment Situation -- February 2013

From the BLS:

Total nonfarm payroll employment increased by 236,000 in February, and the unemployment rate edged down to 7.7 percent... Employment increased in professional and business services, construction, and health care.

The unemployment rate edged down to 7.7 percent in February but has shown little movement, on net, since September 2012. The number of unemployed persons, at 12.0 million, also edged lower in February.

Lots of yahoos! out there about this report, so let me offer a few cautions from Phil Izzo at the WSJ:

... The number of people who say they are working increased by 170,000, solid increase from the prior month. Meanwhile, the number of people counted as unemployed tumbled by an even larger 300,000. That sparks some concern. It means that all of those unemployed didn’t find jobs. Many of them are likely retirees or people who leave the labor force to go to school. But there also are large numbers of discouraged workers dropping out of the labor force. The number of discouraged workers jumped in February.

The issue can be seen in the smaller drop in the broader unemployment rate, known as the "U-6"... That includes everyone in the official rate plus [discouraged workers and part-time workers who would rather be working full-time.] ... In February,... the number of part-time workers who would like full-time jobs increased and the ranks of those marginally attached to the labor force climbed.

The disparity highlights the plight of the long-term unemployed, whose ranks increased in February even as those without a job for a shorter time had an easier time finding a new position. The longer someone is out of a job, the harder it is for them to find work.

We should also recognize that these numbers are often revised substantially, e.g. last month's number was revised downward from 157,000 to 119,000. With that said, again from the WSJ (Ben Casselman):

Jobs reports are often a mishmash of good news and bad, with no clear signal of the direction of the labor market. Not this month. Virtually all of the major indicators were pointing in the right direction: Payrolls were up, the unemployment rate was down and every major piece of the private sector posted job gains. The consumer sector appears to have shrugged off higher taxes and rising gas prices; retailers and restaurants added jobs. Perhaps the only significant negative was a downward revision to January’s job growth, which could suggest the Fiscal Cliff had a bigger impact on employment than initially thought.

Update: See also Dean Baker:

Job Growth Picks Up Steam in February, by Dean Baker: The Labor Department reported that the economy added 236,000 jobs in February. With a small downward revision to job growth over the prior two months, this brings the average growth rate over the last three months to 191,000. The unemployment rate fell to 7.7 percent, but this drop was largely attributable to a decline in labor force participation. The employment-to-population ratio (EPOP) was unchanged at 58.6 percent, exactly the same as the rate in February of 2012 and just 0.4 percentage points above the low hit in the summer of 2011. This compares with an EPOP of 63.0 percent in 2007. The 54.8 percent employment-to-population ratio for women is just 0.2 percentage points above the low hit last month.

The decline in labor force participation in this cycle has been striking. While the unemployment rate has dropped more than 40 percent of the way back to its pre-recession level, the employment-to-population ratio is still far closer to its trough than its pre-recession peak. ...

By education attainment there is the striking anomaly: The EPOP for those with less than a high school degree is almost back to its pre-recession level. It rose by 1.9 percentage points in February to 41.9 percent. This compares with a 43.3 percent average for 2007. Insofar as the aging of the population is a factor depressing EPOPs, the decline should show up most clearly among those with less than a high school degree since these are disproportionately older workers. The fact that EPOPs have not fallen much for this group suggests that the aging of the population is not an important factor behind declining EPOPs. ...

There was some modest good news on the wage front with the average hourly wage increasing at a 2.85 percent rate in the last three months compared to the prior three. This would indicate some acceleration and actual real wage growth, but it is way too early to assume the pattern will continue.

The 236,000 new jobs reported for February are a good sign and better than generally expected, but there is the risk that this is being driven by unusually good winter weather. This could lead to a situation like we saw last year with very weak job growth in the spring as the result of hiring being pulled forward. This is basically a picture of an economy that is showing modest growth, but has not yet felt the impact of the end of the payroll tax cut and the sequester.

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