The Jobs Picture
The economic tea leaves are prompting a new level of optimism among policy makers and market observers. Speaking on Sunday, former Fed chairman Alan Greenspan said, “There is a momentum building up which is really just beginning, and it’s got a way to go.” He suggested that the likelihood of the economy slipping back into recession has abated over the past two months. While not an expert in the domain, he went on to say that the commercial real estate market correction had largely run its course: “If we were going to get severe secondary reactions, they would have already occurred.”
In private, many economists and policy makers are circumspect with regard to their expectations for the recovery. Less equivocal public statements are part of the public-relations campaign that can help move the recovery forward. In 1954, John Kenneth Galbraith spoke to this point in his treatise on the Great Depression: “By affirming solemnly that prosperity will continue, it is believed, one can help insure that prosperity will in fact continue. Especially among businessmen, the faith in the efficiency of such incantation is very great.”
Banking on optimism being contagious, members of the Obama administration have joined the increasingly sanguine chorus attuned to improving economic data. Larry Summers, currently serving as director of the National Economic Council, offered that job growth is projected to “accelerate” in the coming months. He was speaking on the heels of Friday’s job report, which showed that the labor market eked out a gain in payrolls during March. According to the Bureau of Labor Statistics, total non-farm seasonally adjusted employment increased by 162,000 jobs in March. Despite this growth, the national unemployment rate remained at 9.7 percent for the third consecutive month. An alternative measure of the unemployment rate-which includes all persons unemployed and those marginally attached to the labor force-increased by 10 basis points in March, from 16.8 percent to 16.9 percent.
IF JOB CUTS moderate, some disenfranchised workers have resumed their job searches. But the labor market remains cool to unemployed Americans. The average duration of unemployment increased from 29.7 weeks in February to 31.2 weeks in March; the median duration rose from 19.4 weeks to 20.0 weeks. The long-term unemployed, or those unemployed for 27 weeks or more, increased by 414,000 people in March. With this increase, the number of long-term unemployed reached 6.5 million, and grew as a share of all unemployed persons, from 40.9 percent in February to 44.1 percent in March. Furthermore, the number of people working part-time for economic reasons—due to an inability to find full-time work—rose for the second consecutive month in March, and at 9 million people, this figure is as high as it was one year ago.
The federal government was a leading contributor to the employment increase in March, adding 48,000 jobs to the national payroll. State governments shed 5,000 jobs in March, and local governments lost 4,000 jobs. Apart from the large net increase in public payrolls, March’s headline employment increase reflected 123,000 jobs added in the private sector. That total included 41,000 jobs added in goods-producing positions, including 15,000 construction jobs. The increase in construction employment included an unexpected gain of more than 9,000 jobs in non-residential construction.
Service-providing industries added 82,000 jobs in March, including a net increase of 14,900 retail jobs. In areas of office-using employment, the March data shows continuing weakness. The information-services sector lost 12,000 jobs over the month; the financial-activities sector, 21,000 jobs. Year-over-year, the information sector has shed 135,000 jobs, and the financial services industry has contracted by 253,000 jobs. Overall, the professional-services industry added 11,000 jobs in March. But 24,300 jobs created in administration and waste services and the 40,200 temporary help-service jobs were more than offset by losses in other service areas.
Looking forward, sustained job gains will take hold once productivity gains level out and demand for goods and services strengthens. Employment and demand are self-reinforcing, so businesses will be looking for stronger business and consumer sentiment following the current job numbers’ release. Economists currently anticipate job growth on the order of 125,000 to 150,000 jobs per month over the next year.
Ignore the economist who professes oracular powers. As Galbraith reminds us, “The only function of economic forecasting is to make astrology look respectable.”
Sam Chandan, Ph.D., is global chief economist and executive vice president of Real Capital Analytics and an adjunct professor of real estate at Wharton.