Jobs Market: Continued Improvement

This morning’s jobs report from the Bureau of Labor Statistics makes for some quite dull reading. The headline is that the economy added 227,000 new jobs in February, which is slightly more than analysts expected, but is not a terrific burst of growth either. Indeed, so much the same as January’s report is February’s that whoever writes it had to resort to a variety of tricks to avoid repeating the words “essentially unchanged” in every single paragraph. Thus we were treated to “showed little or no change”; “little change”; and “about the same” in order to spice things up a bit. Even then I count that three of the first seven paragraphs include the dreaded “essentially unchanged” phrase.

Oh. And at 8.3% the unemployment rate is not “essentially” but actually unchanged.

So it appears that the economy is generating jobs at a steady if unspectacular rate. Good.

But also bad.

At this rate we will still have unacceptably high unemployment for well over the next two or three years.

That’s the dull part of today’s news release.

The more interesting part is the divergence between the two surveys that constitute the sum report.

As I have mentioned before the two surveys are one of households, this is the one from which the unemployment rate is calculated, and one of business establishments which is the one where we find the payroll increases and decreases. Sometimes, in fact more often than not, the two send out different messages. That’s why we stick to one or the other in order to track month to month changes.

February’s quirk was that the survey of households shows an increase in the number of people claiming to be employed of 428,000. The equivalent increase in January was an enormous 847,000. Likewise in February the household survey tells us that 310,000 people dropped out of the workforce, whereas in January 1,177,000 people joined. These huge swings are what makes using the household survey difficult as an indicator of the underlying trend in employment. Further, in February 48,000 additional people reported themselves as being unemployed, while in January there were 339,000 fewer people reporting that way.

Clearly underneath the top line numbers is a seething to and fro that only manifests itself over the longer term. It is better therefore to ignore the month to month gyrations and focus on those trends.

What can we make of those trends?

If we keep within the household survey – the one that relies on what people say when they are interviewed – we can identify a sea change in the job market. The number of people responding that they are employed has risen by a whopping 2.3 million in that last six months. That’s a monthly gain of 385,000. That’s the best growth the economy has seen for a decade, since 2000 to be specific, and represents a radical departure from the gloom during the collapse during the crisis.

Evidently conditions are much healthier, which is why we are also seeing improvements across the board in other indices such as confidence and spending.

But they do not constitute a total recovery.

The point to recall is that the depth of the recession was so huge that these rates of recovery, while always welcome, are not sufficient to get us back to where we would have been had the bubble, our banks, and household indebtedness conspired to throw us over the cliff. There is a very long way to go. And there are still very large risks lurking that could stop the recovery in its tracks.

With a temporary respite in the Euro crisis – and I think it is only temporary – and with a modicum of sense prevailing in the West’s attitude towards Iran there appears to be no immediate shock likely to emanate from either quarter. That leaves our banking system as the risk factor most likely to knock us off track: the rate and quality of credit creation, the level of capital, and the continued over subsidy of the industry – and the consequent liability it represents to taxpayers – all are very significant factors to watch carefully over the next few months. Boxing the banks into a smaller corner is the single largest policy step we can take to ensure a smooth, sustainable, recovery. The national debt and the budget deficit do not come even close.

So.

All in all a dull but nice jobs report. Don’t make too much of it. But don’t underplay its significance either.

I give it a solid “B”.