Job Picture Brightens in February

The latest job report for February is promising as the unemployment rate fell to 8.9% from 9.0% in January and job creation of 192,000 is the highest level recorded since last May.   Even though the unemployment rate was three-tenths of a percentage lower than expected, it should be noted that economists were fairly accurate when they expected an increase of 190,000 jobs this month.  In particular, the private sector added 222,000 jobs, but the public sector continues to decline (30,000) as state and local governments tighten their belts.  Overall, this is a good start and a precursor to improved labor picture as the weather improves.

Private sector employment is a key indicator to a healthy labor market.  Most jobs are created by industries and organizations made up of private individuals, rather than government.  One attractive aspect is that over 68% of industries reported job gains, which is the highest since 1998.  This is a sign that business optimism is on the rise and they are expecting the U.S. economy to recover.

One potential negative is that Americans are more leery of the recovery than businesses.  It should be noted that economists was prescient in their job growth forecasts, but were wrong in predicting that the unemployment rate would rise slightly to 9.2%.  Even though it appears that a declining unemployment rate in this case is good, that should be tempered by the fact that many people are still discouraged.  As reported by the Economic Policy Institute, labor force participation rate remains low at 64.2%.  During a healthy labor market, we want to see that figure to be in the high sixties.  Another indicator that people are still on the sidelines is that the employment to population ratio has declined from 58.5% to 58.4%. Of course, the momentum can quickly change as the weather improves and business optimism continues.

As we look in the future, there are trends that will need to be monitored.  Should we be encouraged by higher business activity and greater optimism?  Or should we be concerned by the recent surge in gas and energy prices?  If the labor market continues to improve, then one can point to a stabilizing Middle East picture.  However if rebellion and disruptions become more significant in that region, that can reverse labor market optimism quickly.