Why a Good February Jobs Report Might Be Deceiving
Friday, March 22nd, 2013
The February jobs report exceeded expectations with the unemployment rate falling to 7.7% and 236,000 jobs added. While that suggests optimism, self-inflicted wounds from congressional gridlock may eventually lead to unnecessary damage to economic growth and unemployment. What is misunderstood is that the impact of policy is not fully felt until months later. That is because it takes time for both businesses and consumers to fully respond and react to the recent legislative acts. Also, spending cuts from the sequester will not take place immediately. When one takes a closer look at two articles from MarketWatch and CNNMoney, there is evidence that some of these results might be deceptive.
Robert Brusca of FAO Economics has another take on what seemed like a positive report. Based on February's short length and high number of holidays, he believes that we should not put too much credence in this report because it can be skewed by seasonal factors. That is supported by last year's data where there was 271,000 jobs added last February and was followed by much less job growth for much of the rest of 2012. He also noted that there was a downward revision in January's numbers where job growth was reduced from 157,000 to 115,000 and he thinks that is more indicative of where the market is. Lastly, he points out that average job growth of 169,000 for the first two months of 2013 was far short from the 291,000 averaged from the first two months of last year.
In reviewing the CNNMoney report, we can see that negative employment trends remain. First, we have only regained two-thirds of the jobs lost during the Great Recession. Even with the consistent job growth over the last couple of years, it has not been able to keep pace with a growing labor force and long-term unemployment rates remain very high at 40%. During normal economic times, we saw only half of that.
Having said that, there are positives. It was good to see that construction jobs are increasing. That is undoubtedly a result of a recovering housing market where home prices steadily rising over the last year. In fact, home prices increased by 7.3% nationally in 2012, which is the highest we have seen since well before the recession. Housing markets are usually a strong indicator for a robust recovery. That is because buying homes lead people to buy additional items, such as appliances and other household goods.
In summary, my inclination is that we should expect more headwinds that will slow economic growth, particularly when we get to the second half of the year which is when the sequester will start to show its greatest impact. Legislative uncertainty remains with a possible government shutdown within the next month. The combination of that and the delayed effects of the sequester are reasons for caution. That is unfortunate because there were indications that the economy was on the cusp of a more robust recovery.