The U.S. jobs market appears to be at a turning point.
After more than two years of staggering pain for workers, the latest employment data include signs that a historic wave of heavy job losses may be ending, although only modest gains are expected in the near future.
And even as the economy begins creating those new jobs, the unemployment rate could rise back above 10 percent, say some economists. In any case, it will likely be years before it falls again to “normal” levels or anywhere near the 5 percent where it stood before the recession began in December 2007.
Employers cut fewer jobs than expected in February, despite fears that a major storm would skew the numbers to the downside. The unemployment rate held steady at 9.7 percent as nonfarm payrolls shrank by a mere 36,000 jobs. There was more encouragement to be found in the revisions to the Labor Department’s original estimates for December and January, which 35,000 fewer net job losses than previously reported.
"If we did not have bad weather, then this number would have been solidly positive. It tells me the economy and the jobs market have evolved to the point where we are now ready to produce jobs," said Phil Orlando, chief equity market strategist at Federated Investors in New York.
That would be good news for President Barack Obama and fellow Democrats, who worry that voter anger could cost them in November if the economy doesn’t start putting Americans back to work.
"I'm not going to rest, and my administration is not going to rest, in our efforts to help people who are looking to find a job," Obama said Friday.
But the news about jobs may get worse before it gets better.
That’s because the widely followed unemployment rate may move higher again before it begins a longer-term decline. The reason is the mathematical flip side of the reason it has fallen from its peak of 10.1 percent over the past few months.
The "official" jobless rate represents the number of unemployed workers as a percentage of the work force, as measured by a survey of households. But to be counted in the work force, you have to be actively looking for a job. (Officially, “actively” means at some time in the past four weeks.)
As the job market went from bad to worse in the recession, the labor force shrank by roughly two million, in part because many people stopped looking for work.
“When there are no job opportunities, and there clearly have been no job opportunities over the last couple years, people say, ‘Why am I looking?,” said Mark Zandi, chief economist at Moody's Economy.com. “Some people get severance packages that are pretty good, and they’re saying, 'It doesn’t make sense for them to look. There are just no opportunities.'”
As the economy improves more unemployed workers could join the official work force simply by looking for jobs. That’s not unusual coming out of a recession, Zandi notes, which is why the unemployment rate tends to be one of the last economic indicators to show improvement when the economy begins growing again after a downturn.
With some other economic indicators already flashing green — notably big gains in gross domestic product for the past two quarters — most forecasters expect the recovery to pick up steam. Many believe the economy will soon begin showing a net gain in jobs.
“The February jobs report suggests that the economy is on the verge of creating jobs, and that it will break through to sustained job creation beginning in March,” Nigel Gault, chief U.S. economist at IHS Global Insight, wrote in a note to clients Friday.
That’s not surprising, given the massive government stimulus from hundreds of billions of dollars in emergency spending by the Treasury and the more than $1 trillion in fresh cash the Federal Reserve pumped into the economy. Voters will likely judge those policies by the number of jobs they create, not the impact on other economic data.
And some economists worry about the long-term impact of the stimulus programs.
“The government is going to be hiring workers and going to make (the jobs data) look good in March, April and May, and the government will claim credit for that,” said David Malpass, president of Encima Global, an economic research firm.
“But I don't think the actual programs that they're putting in place are helping at all," said Malpass, a former senior Treasury Department official in the Reagan administration. "If you're a small business, you're looking at a difficult financing environment with a very high tax rate." He said future high taxes will discourage small businesses from hiring.
While many economists believe the job market is getting better, no one is suggesting it’s in good shape. The searing pace of layoffs that sidelined more than eight million people in two years seems to be fading. But for most of those, employment prospects remain terrible.
Part of the reason is that the jobs that were lost may never come back, and the people who lost them may not have the right training for the jobs that are being created
"The trend is getting better for jobs, if you have the skills,” said John Silvia, chief economist for Wells Fargo.
Often overlooked in the discussion about monthly job numbers is that they represent a net figure after many jobs are created and others are eliminated. But the turnover in jobs created and lost remains stubbornly slow, said Malpass.
“There is a lot less dynamism in the economy,” he said. “Normally you have seven million people every quarter getting a job and almost seven million people losing a job. That's way down now in these current quarters.”
The unemployment rate is also expected to remain stubbornly high because this recession has created a pool of unemployed workers so large it could take years to rehire even in the strongest of recoveries.
Even if the economy soon begins creating 150,000 net new jobs a month — a “good” number by historical standards — that will just about keep up with the growth of the population. It will take a much higher level of job growth to have a significant impact on the unemployment rate.
“It’s really related to structural unemployment in terms of losses in housing and finance, Wall Street finance, automobiles and the associated small businesses that create those jobs,” said Bill Gross, head of money manager PIMCO. “It's not a normal business cycle that we're looking at."
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