While noting that the U.S. economy remains vulnerable, the NYT's David Leonhardt says the government's monthly employment report last week actually understates recent job gains. That's because the Labor Department has a hard time counting the number of new businesses sprouting up. As a result, the agency tends to be "too pessimistic in the early stages of a recovery (and too optimistic in the early stages of a downturn)."
Leonhardt also says the so-called household survey, which is used to calculate the official unemployment rate despite generally being less accurate than the business survey, is a better gauge for detecting key inflections in the economy. That may be reason for optimism, since the latest household numbers showed stronger job creation in lowering the unemployment rate to 8.9 percent.
The U.S. added a total 192,000 jobs last month, more than triple the number added in January. The economy needs to generate 125,000 new jobs per month to absorb the number of people entering the labor force. Economists say job creation must hit 300,000 jobs per month to make a significant dent in unemployment.
Slow boat to full employment
Economists at the UCLA Anderson School of Management seem to support the view that the economy is clicking into gear. They forecast payroll employment growth this year of 1.9 million, 2.6 million in 2012 and 3 million in 2013.
At the same time, the researchers agree with others who contend that the uncharacteristically large decline in unemployment between December and February owes chiefly to discouraged job seekers dropping out of the labor force. Factoring those people into the employment numbers paints a bleaker picture, says economist Heidi Shierholz of the Economic Policy Institute, a Washington think-tank:
If these workers were unemployed but still in the labor force (i.e., looking for work), the unemployment rate would be 9.8 percent right now instead of 8.9 percent. In other words, the improvement in the unemployment rate over the last year (from 9.7 percent to 8.9 percent) is largely due to would-be workers deciding to sit out due to weakness in the labor market.She also notes that the labor force actually has 300,000 fewer workers today than it did a year ago, even as the working-age population grew by 1.9 million over that time. And if you look at the ratio of working-age population to the number of people who have a job, that figure has slipped slightly over the last year.
Add it all up and here's what you get: A job market that is improving steadily, but slowly. The CBO expects the jobless rate to fall only very gradually, to 9.2 percent by year-end, 8.2 percent in the fourth quarter of 2012 and 7.4 percent toward the end of 2013. Unemployment won't descend to its "natural" level of just over 5 percent until 2016, according to the congressional agency.
That's what you would expect given the size of the housing bubble that triggered the financial crisis. The question now is whether the recent job gains are the start of a period of sustained growth or a brief flutter ahead of another downturn, as occurred in early 2010. We probably won't be able to draw a bead on that until summer, when -- and if -- the Federal Reserve tosses aside its monetary crutches for the economy. Until then, it's hold onto your hats.