Unemployment Falls To Lowest Level Since 2008, Belying Weak GDP Data

by: Ed Dolan

The latest jobs report from the Bureau of Labor Statistics shows that the unemployment rate fell to 7.7 percent in February, its lowest level since the end of 2008. (Last fall, the BLS reported a dip to that level for November, but year-end rebasing revised that up to 7.8 percent.) Payroll jobs increased in February by 236,000, the second best in a year. The relatively upbeat jobs report is especially welcome since it comes on the heels of gloomy GDP data that showed the U.S. economy at a standstill in the last quarter of 2012.

Looking more closely at the household survey, which supplies the basis for the unemployment rate, we find more good news than bad. The one weakness was a 130,000 person decrease in the size of the labor force. However, that was more than overshadowed by a 170,000 increase in the number of employed persons, and a 300,000 decrease in the number of unemployed. (The number of new jobs in the household survey differs from that in the establishment report partly because it is based on a different survey and partly because it includes self-employed and farm workers.) At the same time, U-6, a broader measure of unemployment that includes discouraged workers and those involuntarily working part time, fell to 14.3 percent, its lowest in more than four years. On the other hand, the median duration of unemployment and the percentage of unemployed workers out of a job for 27 weeks or more both rose slightly.

There was also more good news than bad in the details of the establishment survey. Private sector job gains of 236,000 were broadly based. Goods producing industries, including both manufacturing and construction, contributed more than their share of new jobs. In the service sector, retail trade, professional services, and healthcare all showed strong growth. However, the fiscal drag from budget cuts was reflected in a loss of 10,000 government jobs. Employment fell across the board at the federal, state and local level. Loss of state and local education jobs accounted for about three-quarters of the net decrease. As the chart shows, government employment has been trending down throughout the recovery. With the sequester in place, the trend is certain to continue.

The big question left hanging by today's report is whether the relatively robust jobs numbers or the much less encouraging GDP data will point the way for the economy as a whole in 2013. The economy gained 626,000 jobs in Q4 2012 despite reported GDP growth of just 0.1 percent. It has already gained 355,000 jobs in the first two months of Q1 2013. It will be almost two months before we get our first peek at Q1 GDP. Until then, economy-watchers will have to judge the best they can on the basis of fragmentary monthly numbers.

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