The United States labour market is a story of two surveys: one that is good, and one that is even better.
American employers outside agriculture added 227,000 jobs in February, compared with upwardly revised gains of 284,000 in January and 223,000 in December, the U.S. Labour Department reported Friday.
The increase, based on a review of changes in company payrolls, was slightly better than most Wall Street analysts were expecting, and marked only the third time in the past 10 years that the U.S. economy created more than 200,000 jobs in each of three consecutive months.
Stock markets rose, as the jobs data bolstered the perception that the U.S. economy has turned a corner. Headwinds such as the European debt crisis and government austerity in North America will slow the economy’s momentum. Still, the latest jobs report, which showed broad-based private sector hiring led by the manufacturing industry, suggests the recovery is at least entrenched, if not picking up steam.
Remarking on the string of monthly hiring increases greater than 200,000, Austin Goolsbee, the former head of U.S. President Barack Obama’s Council of Economic Advisers, told CNN that, “if you keep doing that on a sustained basis, you will bring down the unemployment rate quite significantly.”
However, Mr. Goolsbee, who is now an economics professor at the University of Chicago, is even more impressed by another aspect of the Labour Department’s monthly analysis of the jobs market.
Economists pay closest attention to the payrolls survey because it tends to be the most reliable gauge of hiring and firing. But Labour statisticians also poll households. The main purpose is to generate the unemployment rate, which was unchanged at 8.3 per cent in February. Analysts typically play down what this survey says about aggregate changes in the labour market because they assume respondents aren’t always truthful about their employment status.
Yet there are moments when the household survey does a better job at capturing the trend in the labour market. This could be one of those times.
In February, the household survey showed that 142.1 million Americans were employed, an increase of 428,000 from January.
Over the three months from December, the average increase in employment is 484,000, about double the hiring rate depicted in the payrolls analysis. According to Sal Guatieri of BMO Nesbitt Burns, the household survey shows an increase of 2.6 million jobs over the previous seven months, the most in a dozen years and twice the number shown in the payrolls report.
The two reports rarely are in sync. However, when the household survey gets this far ahead of the payrolls survey, it suggests people are finding jobs with smaller companies and startups that aren’t captured by the Labour Department’s payrolls analysis. This tends to happen at turns in the economic cycle, economists say. In time, the gap will close. But for now, the household survey could be the better measure of the strength of the U.S. economy.
“That’s a good sign,” Mr. Goolsbee said of the outsized gains in the household survey.
Still, no analysis of the U.S. labour market can escape the reality that millions of Americans continue to languish on the sidelines of the economy.
The unemployment rate remains a long way from the roughly 5.5 per cent that the U.S. Federal Reserve Board considers emblematic of an economy operating at its full potential. Wages are stagnant, growing at a slower rate than inflation. And more than 42 per cent of the unemployed have been so for longer than 27 weeks, not much of a change from the post-Second World War peak of 45.5 per cent almost a year ago. Pervasive long-term unemployment poses not just an economic risk, but a societal one, because deteriorating skills make it difficult to get a job once economic growth resumes.
For these reasons, economists said the Fed likely will look past the early signs of a healthy jobs recovery, and restate its intention to leave interest rates extremely low for another couple of years when policy makers meet next week.
However, further stimulus is looking less and less necessary.
“In the next few months, we think that payroll gains may cool off from their recent pace, perhaps to around 200,000 per month,” Kevin Logan, chief U.S. economist at HSBC, said in a report. “Nonetheless, businesses have clearly become more optimistic about the economic outlook since the summer of 2001.”