January Job's Report Worth Cheering, but Jobless Benefits Up in the Air

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.