The U.S. Adds 236,000 Jobs, Unemployment Falls To 7.7% - But Do The Numbers Tell The Real Story?

by: Steve Picarillo

The U.S. economy created 236,000 jobs in February, which was much higher than expected and noticeably higher that the 157,000 jobs created in January.

Certainly the headlines suggest positive momentum as employment has risen by an average of 195,000 jobs per month in the last three months. While jobs creation increased, these numbers are still falling short of the key number of 250,000 new jobs per month that are needed over a sustained period to significantly dent the ranks of the unemployed. Nonetheless, the unemployment rate fell slightly to 7.7% last month, the lowest since December 2008, and down from 7.9% in January. This is certainly a surprise, given the weakness of the numbers.

Looking beyond the headlines, one sees a bit of disconcerting news. The number of long-term unemployed, those out of a job for at least 27 weeks was unchanged, accounting for about 40% of the jobless total. This phenomenon can help explain the reduction in the unemployment rate with job growth below the 250,000 new jobs per month benchmark. The long-term unemployed tend to fall off the statistics, as job hunters get discouraged and exit the market, take part-time jobs, or jobs that are well below their potential. So considering the discouraged, underemployed, the consultants and the "early retired," the real unemployment rate is much higher, more in the 14% range. This certainly paints a less rosy picture.

Further, employment growth was somewhat uneven, with employment increasing in professional and business services, construction and healthcare. Given the aging population and the restart of the housing markets, it is likely that healthcare and construction will fuel additional sector growth and open new investment opportunities. But can these sectors drive sustained employment growth? Not likely.

Lastly, there are still pending layoffs, largely in the financial/banking sector, that have yet to hit the statistics.

That said, the labor market is improving with the economy producing more than twice as many jobs as it did at the low point in the second quarter of last year. But the slowness in job creation adds reason for pause. With the modest economic growth of just 0.1% in the October-December quarter, it is difficult to forecast continued strength in the employment picture.

The aforementioned concerns (despite the positive sounding headlines), the ongoing global economic turmoil, the reduction in disposable income for most Americans, and the pending spending cuts owed to the sequester may threaten the positive momentum of the U.S. equity markets.

Clearly we will see some profit taking in the near term. There are still sizable economic headwinds and reason to be cautious in investing.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.