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The February Employment Report

The employment report for February was released this morning, and it is relatively good news. The report shows the unemployment rate falling slightly to 8.9 percent and payroll employment increasing by 192,000. The employment population rate was unchanged at 58.4 percent, and the labor force participation rate was unchanged at 64.2 percent. In addition, the broader unemployment rate, U-6 (which includes discouraged workers, involuntary part-time workers, and workers who are underemployed), fell from 16.1 percent to15.9 percent.

Looking at this month in isolation, this is a big improvement. We need 100,000 to 150,000 new jobs per month to keep up with population growth (the number is likely closer to 100,000 than to 150,000, the uncertainly is over labor force participation rates after the recession). So 192,000 jobs not only keeps up with population growth, it also reemploys some previously unemployed workers -- something that is very much needed since there are millions who have lost jobs since the recession started.

There are, however, a couple of qualifications to these numbers. The January numbers are notoriously uncertain due to problems with seasonal adjustment near the holiday season at the end of the year. In addition, unusual weather may have distorted the numbers. As Calculated Risk notes, if we average the January and February numbers to smooth out the uncertainties, we get 127,500 per month. This is about what is needed to keep up with population growth, but it does not reemploy any of those millions of unemployed who need jobs. But even so, things seem to be moving in the right direction in terms of job creation.

The second qualifications is about the magnitude of the job gains. In previous recoveries, it has been common to see job creation of 300,000, 400,000, or even more per month -- enough to keep up with population growth and reemploy displaced workers -- but we aren't seeing anything like this level of growth. And we have a long way to go:

Long-way-to-go [Source: FRBSF]
At this rate of job creation, the recovery will be even slower than pictured (one estimate says it would take 14 years).

But, again, things seem to be getting better and there is hope that the improvement will continue and lead to accelerated job growth in future months. This is a start, but a timid one -- there is a long, long way to go and we shouldn't get overconfident and assume the recovery will take care of itself. In particular, with uncertainties ahead such as what will happen with oil prices, it is too soon for the Fed to raise interest rates and too soon for Congress to begin deficit reduction. Hopefully that time is not too far away -- I would welcome calling for interest rate hikes and deficit reduction to slow down an economy that is in danger of overheating -- but we aren't there yet.

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