The falling unemployment rate -- it slipped to 8.9 percent in February, according to a Department of Labor Statistics report released today -- is good news, but the reason behind it is even better: Small business is hiring again.
According to the BLS, the economy added 192,000 jobs in February, the largest increase since last June, when the stimulus was in full swing. Over the last three months, the unemployment rate has dropped almost a whole percentage point (from 9.8 percent in November) and has fallen below 9 percent for the first time since April of 2009.
Why? As the public sector sheds jobs at the state and local levels, the private sector is making up for the job losses, with small and medium-sized businesses doing much of the hiring. In February, small businesses (defined as fewer than 50 employees) added 100,000 jobs to the economy while medium-sized businesses (50-499 workers) added another 104,000, according to a report released Wednesday by Automatic Data Processing Inc., a payroll processing firm. Big business added only about 13,000 jobs.
Small businesses started hiring again at the beginning of 2010, and have been adding jobs consecutively over the last 12 months, the report says. Over the last three, they've added about 100,000 jobs per month --making up about 45 percent of new jobs. Companies with more than 500,000 employees, meanwhile, have only boosted hiring by about 10,000 jobs per month over the same time period, about 5 percent of new jobs.
According to the National Independent Business Association, small business hiring is likely to continue. Entrepreneurs have consistently reported plans to hire more employees over the last five months, and 15 percent of employers are reporting hard-to-fill job openings, "indicating that a reduction in the unemployment rate is likely within the next few months," says William C. Dunkelberg, chief economist for NFIB.
But despite the good news, Dunkelberg says the pace of the recovery will remain slow. The economy actually produces more now than it did back in 2007, despite the fact that it's shed 7.2 million jobs since then. The increased productivity is not exactly a motivation to hire new workers. That said, "overall, the labor market is improving, even if that improvement is slow," he says.
Another potential problem on the horizon? Congress is still debating massive federal budget cuts, which could lead to more public sector layoffs at the federal level, driving the unemployment rate up again.
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