January Job's Report Worth Cheering, but Jobless Benefits Up in the Air
Jotham Sederstrom Feb. 7, 2012, 10 a.m.
New Yorkers’ restored enthusiasm is spilling out into the streets. Most of the revelers are undoubtedly celebrating our city’s Super Bowl victory. But a small minority—real estate investors among them—is also marking an inflection in the recovery.
Last Friday’s jobs report overshot expectations, propelling the Dow Jones Industrial Average to its highest level in almost four years. The Nasdaq managed one better, spiking to an 11-year high. Apart from equities, property investors are pointing to the new data as vindication of aggressive bidding strategies in Manhattan, Washington, D.C., and other cardinal markets. But have we reached a decisive point in the recovery? The evidence is hardly conclusive.
Friday’s employment report easily surpassed economists’ expectations for January. Apart from annual revisions and the anticipated drag from government payroll cuts, gains were broadly based. Hiring was slightly positive in nonresidential construction and some segments of manufacturing. Gains in service occupations were more pronounced, particularly in professional and business services, health care, and leisure and hospitality. Professional and business service gains were qualified, however.
Administrative services, including temporary help, accounted for just over half of January’s 70,000 new jobs in this category. A careful read of the data shows that improvements in permanent office-using employment continue to lag other areas. For New Yorkers wondering about the relevance of these national trends, the abysmal performance of financial services is a case in point; the sector shed 5,000 jobs in January and has been essentially flat over the past year.
Employers have added fewer than two million net new jobs in the past year. The private sector’s 2.2 million jobs have been offset slightly by federal, state and local losses. While January’s gains are the best result since last April’s, we have a long way to go. The new data can be interpreted positively, but they do not yet support definitive claims of a sustained acceleration in job creation. The underlying weakness is reflected in the household data. The number of Americans not in the labor force has increased by more than 2.5 million over the past year. The share of long-term unemployed increased between December and January and is near its historic high, far exceeding anything observed in U.S. postwar history or within the sustainable capacity of the social safety net. The labor participation rate continues to drop, a trend that renders the highly touted decline in the unemployment rate woefully misleading.
We will not have another glimpse at headline jobs data until March. In the interim, perceptions of the recovery will play out on other fronts. Apart from the stalemate in Europe, which has succeeded in pushing the euro zone’s unemployment rate to a record high of 10.4 percent, domestic issues will also feature prominently in the property outlook. On the legislative front, negotiations over the payroll tax cut and emergency jobless benefits have implications that may extend well beyond disposable income and retail spending. In spite of bipartisan support, members of the House and Senate reconciliation committee could push the debate to the 11th hour. In thwe event the tax cuts are allowed to expire, the Congressional Budget Office anticipates a significantly negative impact on economic activity in 2012 and 2013, with GDP growth slowing to an annualized real rate of just 1.0 percent next year.
While the tax cuts enjoy broad congressional support, at least in principle, grand housing market interventions do not. Nevertheless, the administration has renewed calls for support of struggling homeowners in recent weeks. During this past weekend’s White House address, the president said he is “sending Congress a plan that will give every responsible homeowner the chance to save about $3,000 a year on their mortgages by refinancing at historically low rates. No more red tape. No more endless forms. And a small fee on the largest financial institutions will make sure it doesn’t add a dime to the deficit.”
Pay close attention, investors. Those struggling homeowners may be the renters you are counting on.
Sam Chandan, PhD, is president and chief economist of Chandan Economics and an adjunct professor at the Wharton School.