March 8, 2012 at 12:56 PM ET
At first glance, the U.S. job market seems to be moving in the right direction, although at a crawl. When you take a closer look, some of the data showing improving conditions for job-seekers may be too good to be true.
The latest signs of improvement came Wednesday from a report by payrolls processor ADP, which showed the pace of job creation by U.S. private employers accelerated more than expected in February. Separate reports from the government showed wages rose much faster than initially thought in the fourth-quarter as worker productivity continued to inch higher.
The pace of layoffs has helped too, as seen in a slowdown in government jobs cuts, according to John Challenger, CEO of Challenger, Gray & Christmas, a job placement firm that conducts a monthly payoff survey.
"That's been a real driving force of layoffs over the last two years, but not in the last two months," he said.
On Friday, the Labor Department is expected to report that the economy created more than 200,000 jobs in February with the unemployment rate holding steady at 8.3 percent.
It's that last number - the portion of the workforce still out of work nearly three years after the recession ended - that remains stubbornly elevated.
"The labor market is still fundamentally weaker than five years ago," said Craig Dismuke, chief economic strategist at Vining Sparks, a Memphis brokerage firm. "We are still in a big hole."
Millions of American workers have been stuck in that hole for a long time. Some 43 percent of the 12.8 million unemployed Americans had been out of work for more than 6 months in January, the latest Labor Department data on the long-term unemployed. In all, nearly 24 million people are either out of work or underemployed. Those people aren't out of work for lack of trying: there just aren't enough jobs to go around. For every opening, there are four unemployed workers who need a paycheck.
The pace of new claims for unemployment has been falling - another sign that hiring is picking up and layoffs are slowing. But the improvement has been uneven. The number of Americans filing new claims for jobless benefits rose last week, according to a government report Thursday. Initial claims for state unemployment benefits rose 8,000 to a seasonally adjusted 362,000, the Labor Department said.
Even with the increase, claims are still near their lowest in four years. The four-week moving average for new claims, considered a better measure of labor market trends, edged up to 355,000, but still is hovering near a four-year low.
With the presidential campaign in full swing, the jobs numbers are taking a prominent place in the debate over the Obama administration's economic policies.
The unemployment rate has fallen by six-tenths of a percentage point from October's level of 8.9 percent. That is an unusually rapid decline and a growing band of optimists expect it to fall below 8 percent by year end.
Though the jobless rate remains painfully high, some researchers believe it's the direction of the unemployment - not the absolute level - that has the greatest impact on the outcomes of re-election campaigns. So far, the downward trend has helped the president.
As the job numbers have improved, so has Obama's approval rating - rising from a low of 41 percent in October to 45 percent in February, according to the latest Gallup poll.
But it remains to be seen whether that momentum can be sustained until the November election. The rapid decline in the jobless rate in the past few months has defied expectations; some economists argue that the widely-followed seasonally-adjusted numbers may be too good to be true.
Some suspect the government's formulas for smoothing out seasonal factors may be inadvertently inflating the numbers. Gallup chief economist Dennis Jacobe figures that, without those seasonal adjustments, the jobless rate has actually been rising for the past three months, hitting 9.1 percent in January.
Seasonal adjustment is a common practice used to analyze economic data because filtering out the impact of seasonal forces usually gives a better assessment of underlying trends. But, for reasons economists are still debating, this winter's seasonal adjustments may have thrown the numbers out of whack
"We think that the improvement over the last few months dramatically overstates the underlying improvement," said Goldman Sachs economist Andrew Tilton. "You will not see that rate of improvement going forward."
Goldman Sachs expects the jobless rate to end the year at 8.2 percent, barely below January's reading of 8.3 percent. That view is shared by economists at the Federal Reserve, whose chairman, Ben Bernanke, has said central bankers don't expect further big drops in the jobless rate.
If the improvement in the job market slows, so could the Obama campaign's political momentum. After dramatic improvement this winter, "slow and steady" gains may not be enough to win the race.
"Employers are still very cautious," said Challenger. "They are being selective about who they hire. They're not adding loads of people."