Jobs Report: Don’t Panic Yet—the Numbers Will (Probably) Be Revised Up
Friday morning’s jobs report was an unalloyed disappointment. The economy created a mere 88,000 payroll jobs in the month—far less than expected and far less than is needed to help claw back the jobs lost in 2008 and 2009. That sucks. The unemployment rate fell from 7.7 percent in February to 7.6 percent. But that wasn’t good news, either. The unemployment rate, calculated from the separate household survey, is calculated by dividing the number of people who say they’re out of work into the total work force. When the labor force shrinks—if people drop out, or age out, or don’t bother to enter—the unemployment rate can fall even if the number of people who say they’re working holds steady. That’s what happened in March. The labor force shrank by 496,000, and the labor force participation rate fell from 65.3 percent to 63.3 percent. That also kind of sucks.
My peers, colleagues, and friends in the financial-political-punditocracy rushed to hit the panic button and assign blame. It’s the payroll tax increase, which is tamping down the ability of consumers to spend. Hence the 24,000 reduction in retail jobs. It’s the sequester, as continuing federal budget tightening is causing a direct decline in federal jobs and hurting contractors. (Federal government jobs fell 14,000 in the month.) It’s Obama’s overall Obama-ness, said House Speaker John Boehner. The financial markets responded in the typical manner. Stocks fell about 1 percent at the opening, while the interest rate on government bonds fell.
The report was shocking in part because, so far this year the data have generally suggested that the U.S. consumer and the U.S. economy as a whole haven’t been thrown off their game by the twin drags of the payroll tax increase and the sequester. Underlying strength in the fundamentals of housing, trade, employment, and the stock markets helped the economy gather strength in the first quarter. Indeed, Macroeconomic Advisers believes the economy grew at a 3.6 percent annual rate in the just-completed first quarter.
But Friday’s jobs report might not be as awful as everybody thinks. And there are a few things we should keep in mind as we freak out about the prospect of another recession.
These figures are frequently revised. This is the first estimate. They are revised in the successive two months. And recently the trend has been for the numbers to be revised upward. The January jobs gain figure, originally reported as 157,000, was revised to 116,000 in February. It was revised up to 148,000 on Friday. The February figure, initially reported as a gain of 236,000, was revised to 268,000. Put another way, BLS, upon further reflection, found an extra 61,000 people at work. So compared with a year ago, 1.9 million more people are working, shopping, and paying taxes. Assume the March numbers get revised upward twice and wind up closer to 100,000 or 125,000. That’s still disappointing, but not catastrophic.
You also have to consider the trend. Recouping all the jobs lost in 2008 and 2009 is a multiyear project. And the economy has made great progress. Since the bottom in February 2010, the private sector has added 6.45 million jobs. In the past year, the economy added 1.9 million jobs in total. And so far this year—January, February, and March—the economy has added about 500,000. That’s an average of 166,000 per month, or an annualized rate of about 2 million, which would be about the same or slightly better than 2012. Good, but not great, and not good enough. The trend, while worrisome, is still our friend. If the next few months show similar numbers to this month, and current data are revised downward, then the case for panic is much more compelling.
Was there anything positive? A few sectors did well. Professional and business services added 51,000 jobs in March and have added 533,000 in the past year. Construction employment rose by 18,000 because housing continues to be back. Health care, which is heavily dependent on government spending, added 23,000 positions. Education, which is similarly dependent on government spending, added 16,000 jobs. Taken together, those data points suggest that the sequester has yet to take a huge bite out of employment.
There was one other small potentially optimistic note. I’ve written before about the “conservative recovery”—essentially, the private sector adds jobs every month and the public sector cuts them. That’s been holding back the recovery in overall employment. Since May 2010, the public sector has axed 1.125 million jobs. Cuts were particularly pronounced at state and local governments, which sought to balance budgets in part by firing police officers and teachers. So what happened in March? The federal government cut about 14,000 positions, with most of those coming from the postal service. Austerity. But as I noted earlier this week, sustained economic growth is improving the states’ collective financial situation, and many are projecting surpluses for the current fiscal year. That means less pressure to fire and some capacity to hire. So in March, state and local government combined added 9,000 jobs, after adding 13,000 positions in February.
The non-Washington austerity hit to payrolls may finally be coming to an end. That’s the good news. The bad news? The Washington austerity looks like it is just beginning.