U.S. Payroll Job Growth Slows; Unemployment Rate Drops As Labor Force Shrinks

by: Ed Dolan

The U.S. economy created a disappointing 88,000 payroll jobs in March, according to today’s report from the Bureau of Labor Statistics. That was down sharply from the 268,000 gain in February. The unemployment rate fell to 7.6 percent, a new low for the recovery, but even that was largely due to a drop in labor force participation.

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The bulk of the 88,000 new jobs were created in the private service sector. Professional and business services provided 51,000 jobs, followed by 44,000 in educational and health services. Goods producing industries contributed just 16,000 jobs, mostly in construction. Manufacturing employment fell slightly. Government employment continued its long downward trajectory, led by a loss of 14,000 federal jobs. State government employment gained slightly and local government jobs barely changed.

The 88,000 increase in payroll jobs was especially disappointing after the strong growth reported in January and February. The latest report revised job gains upward for both of those months, but the total of 504,000 payroll jobs created in the first quarter of 2013 was still well below the 626,000 for the fourth quarter of 2012.

The unemployment rate is based on a separate survey of households that differs from the establishment survey in methodology and includes self-employed and farm workers. The household survey showed a decrease in both the total number of employed workers and the total number of unemployed, accompanied by a drop in the labor force participation rate. The March unemployment rate of 7.6 percent was down by slightly more than a tenth of a percentage point from February’s rate of 7.7 percent.

The BLS also publishes a broader measure of unemployment, U-6, that includes discouraged workers and involuntary part-time workers. That measure dropped sharply in March, from 14.3 percent to 13.8 percent. As did the standard unemployment rate, U-6 reached a new low for the recovery. The decrease was largely due to a drop in the number of people who were working part time for economic reasons, but who would prefer full-time work.

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Data on the duration of unemployment provide still another perspective on the strength of the labor market. Here the picture was mixed. The number of workers unemployed for more than 27 weeks showed a welcome decrease, and their share of all unemployed dropped from 40.2 percent to 39.6 percent. However, the number of those out of work for five weeks or less also fell, sending the mean and median duration of unemployment slightly higher.

On the whole, the March jobs report is consistent with other indicators of a slowing economy. The advance estimate of GDP for the first quarter, due out at the end of April, is likely to confirm that picture. All of these numbers should provide food for thought for Washington policymakers, who, far from looking for ways to get the economy back on track, seem intent on squabbling over whether to use tax increases or spending cuts to slow the recovery further.