Learn Why Labor Market Is Gaining Steam

The U.S. job report was very favorable in March and exceeded expectations.  While the unemployment rate only dipped a tenth of a percent to 8.8%, it was encouraging to see 216,000 new jobs.  That occurred despite further contraction of government jobs with the private sector adding 230,000 positions.  Ideally, we need to see a consistent trend of job growth closer to 300,000 jobs added per month to revert back to pre-recession levels, but it should be noted that this figure is the highest since May 2010.  We can attribute most of these gains to increased economic activity from exports, business investment, and consumer spending.

A boost in exports is always favorable to job creation.  Exports are goods and services produced in the U.S., but sold abroad.  There is usually a direct correlation between exports and job creation and has been a point of emphasis for the Obama administration and the U.S. Federal Reserve.  Over the first two months of 2011, the U.S. totaled $286.1 billion in exports of goods and services, which is an increase of 14.8%.  During this time period, we have seen the trade deficit increase by 7.4%, but that's actually natural given a rich country like the U.S.  One of the reasons why China continually runs trade surpluses is that its home economy is so poor.  Therefore, our focus should be placed more on the level of exports and its upward trend is promising.

Business investment trends are an important indicator on the future health of labor markets.  Before jobs can be added, firms must be confident that the economy is improving.  Even though many Americans remain frustrated with the sluggish job market, business optimism has been on the rise.  According to the Conference Board, CEO confidence index is up 12 points to 62 from 50.   This is a quarterly survey given to key business leaders to assess their optimism of the U.S. economy.  It should be noted that any reading above 50 should be construed as more positive than negative.

To a lesser degree, consumer spending remains relatively good.  Before firms decide to expand payrolls, they need revenues to increase and this is enhanced when consumers open up their pocketbooks.  According the economic snapshot complied by the Atlanta Federal Reserve, we see that real personal consumption expenditures (real PCE) rose by 0.3% in February compared to last January.  While it should be noted that the rate of increase in real PCE between February 2010 and February 2011 (+2.5%) has fallen slightly when compared to January 2010 and January 2011 (+2.7%).  There is concerned whether this will continue because the Consumer Confidence Survey plummeted 8.6 points to 63.4 in March, according to the latest report from the Conference Board.  Concerns about gas and food prices are obviously impacting this figure and might negatively impact future spending.

Overall, we should be encouraged by the new labor report, but we must also recognize that turbulent tailwinds might be on the way.  Consistent progress in economic activity is finally bearing some fruit with job creation.  As we have mentioned before, there is always a lag between an economic recovery and an improved job market.  Having said that, global events can reverse any gains, so we must carefully monitor events in the Middle East, Japan, and areas across the world.  Political turmoil, weather, and public policy initiatives can all play a role in expanding or constricting the U.S. labor market.