Friday, March 9, 2012

February's Jobs Grew 227,000 and Unemployment Remained at 8.3% ... Good News?

This morning's February jobs report was somewhat better than expected. Anytime that occurs, it's good news.

However, unemployment is still very high. That's bad news.

What's ahead? That's the topic du jour.

For the month, 227,000 jobs were created, and the unemployment rate remained at 8.3%. Meanwhile, the broader U-6 unemployment rate declined from 15.1% to 14.9%. So things are improving.

On the other hand, U.S. Still Down 6 million Jobs puts the news in a better longer term perspective:

"The stock market has recovered its losses since hitting bottom three years ago today. But despite gains in employment during that same stretch, America is still down six million jobs, data shows.

The economy added 227,000 jobs in February, more than the 204,000 economists expected, the Labor Department reported this morning. The unemployment rate remained unchanged at 8.3% from last month. But while the economy has added more than 200,000 jobs for three straight months, the damage to employment done by the Great Recession is still far from repaired.

Between December 2007, when the recession officially started, and February 2010, when the Labor Department’s reports show employment hit bottom, the economy lost more than eight million jobs. Between then and now, we’ve added back more than two million jobs. . . .

The struggling housing market is part of the problem. Much of the job growth that happened in the recovery that began in 2002 came from construction and related industries . . . . More than two million of the eight million jobs we’ve lost in this recession were in construction, representing a huge hit to the industry. . . . This month, construction employment fell slightly, losing 14,000 jobs after two months of gains. At the height of the boom, this country was building more than two million new homes a year; as of the Census Bureau’s latest report, that rate is now below 700,000 new homes."

The Long Road Ahead

To repeat, February's jobless rate remained at 8.3% while jobs growth was a better than expected 227,000. What's it mean for the future?

First, let's set aside what the politicians on both sides of the aisle may be saying the next few days, and instead look at the facts, reflect and then decide for ourselves. Consider the following:

(1) Things are definitely improving, and the severe recession is finally behind us.

(2) Thus, the issue now is whether the economy is stuck at "stall speed" with ~8% unemployment or entering a period of "escape velocity" where monthly jobs creation accelerates and moves quickly toward the level of 300,000.

(3) While economists and pundits debate the "stall speed" versus "escape velocity" possibilities, we'll focus on the longer term.

In that regard, we have severe structural unemployment issues which need to be tackled. Today's issues are much different than those recessions and recoveries of the past several decades.

OUR STRUCTURAL PROBLEMS ... Discussion and Analysis

(A) Residential construction, while perhaps bottoming, is in the dumpster and will stay there for at least several years. Foreclosures, declining home prices, tightened lending standards and historically high levels of household debt all add up to a game changer for construction. There's no short term fix to our numerous construction issues, both residential and commercial.

(B) Debt, both private and public, is at historically high levels and will present ongoing and huge headwinds for consumers. Getting our debt under control is a necessary precondition for sustainable economic growth and prosperity.

(C) Layoffs appear to be ending, but substantial new hiring gains seem to be far off. In that regard, the percentage of the long term unemployed stayed at a record high of 42.6% of the total while the average duration of unemployment was still 40 weeks.

(D) The lackluster 1.9% increase in year-on-year average hourly earnings didn't keep up with inflation and also suggests that lower paying service sector jobs are taking the place of higher paying construction and manufacturing jobs.

(E) Global competition won't offer U.S. workers any relief, and the rest of the world's financial difficulties, including those of China, Japan, Europe and the emerging markets, will constrain export sales going forward.

(F) Government's piece of the economy is much bigger than optimal. Accordingly, reducing the size of government at all levels, while absolutely necessary, may cause economic growth to be lower for the foreseeable future.

(G) Things are improving, and that's for sure. However, warmer winter weather in recent months may be sending false signals about the economy's stronger than expected recovery.

(H) High energy prices won't help at all. We must begin to address energy independence seriously.

Summing Up

Things are improving but we have a long road ahead.

We have accumulated massive debt by buying on credit things we couldn't afford, and many of those things added nothing to the productive capability of our work force.

Putting our financial house in order will take years, even if we start doing the right things.

But until we take seriously the structural issues of energy independence, globalization, the size and scope of government, accumulated debt, high deficits and an expensive but underperforming public educational system, our competitiveness problems will become worse.

Thanks. Bob.

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