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Solid jobs growth in March shows recovery is for real

After more than two years of a bleak prospects for job seekers, the economy's slow, steady growth is finally creating jobs at a healthy pace.
Image: California Adds 100,000 Jobs In February
A pedestrian walks by a help wanted sign that is posted in the window of a Middle Eastern restaurant on March 25, 2011 in San Francisco, California. Jobs creation picked up in March and the unemployment rate dropped to the lowest in two years.Justin Sullivan / Getty Images North America

Neither tsunami nor Libyan turmoil nor higher oil prices have shaken businesses from hiring more workers.

After more than two years of a bleak prospects for job seekers, the economy's slow, steady growth is finally creating jobs at a healthy pace.

"Our economy is showing signs of real strength," President Obama told workers at a UPS shipping facility on Friday.

And while Friday’s report on the job market confirms that employers have begun hiring back some of the millions of workers sidelined by the recession that process will take years, even if the economy maintains its current momentum and the current pace of job creation continues.

The report showed job growth across most sectors, a sign that the economic recovery is broad-based and durable, according to Lakshman Achuthan, managing director of the Economic Cycle Research Institute.

"It's here to stay," he said. "There's a revival in the overall economy that started at the beginning of this year, and job growth firming is part of that. I think a few months from now, when you look back, it's going to be very clear that the economy remains resilient despite the shocks we've had."

And we've had a few shocks recently. A tsunami spawned by a massive earthquake rattled Japan, killed thousands, slammed key supply chains in autos and electronics, and created the world's most dire nuclear plant crisis since Chernobyl. In oil-rich Libya, rebel forces have been trying to overthrow the four-decade rule of Moammar Gadhafi and the conflict has drawn in the U.S. and NATO. Unrest has spread across the Middle East and has led to the overthrow of governments in Egypt and Tunisia. The uncertainty has driven oil prices higher.

But none of that seems to have shaken hiring managers' confidence.   

The Labor Department said that non-farm payrolls added 216,000 jobs last month, inching above February's gain of 194,000. Manufacturing continued its five-month streak, adding 17,000 new jobs; retail added 18,000; the education and health care sectors added 45,000.

A rebound in tourism helped the leisure and hospitality industries add 37,000 new jobs. Even the construction industry, which has lost roughly 2.2 million jobs since 2007, showed signs of stabilizing with just 1,000 jobs lost in March.

The broad-based recovery created 78,000 new openings for professional and business services that include legal and accounting jobs.

The only sector showing continued losses was state and local government, where an ongoing budget squeeze forced jobs cuts that eliminated another 15,000 jobs.

The overall gains helped nudge the unemployment rate down to 8.8 percent from 8.9 percent in February. In just four months, the jobless rate has dropped by a full percentage point — further indication, say economists, that the recent momentum in hiring should continue.

As often happens in the early stages of a recovery, employers have been boosting profits by increasing the productivity of their existing workforces. With unemployment still high and jobs relatively scarce, companies have been able to boost their bottom lines by keeping wages flat. Average hourly earnings didn't budge in March; adjusted for inflation, wages are falling.

But as those productivity gains have become harder to achieve, employers are now hiring again to keep up with the ongoing growth in demand.

"The most important fundamental support to the job market is profits," said Mark Zandi, chief economist at Moody's Analytics. "Businesses are very profitable — they have lots of cash and their balance sheets are strong. Confidence is improving. If you look at the business surveys, they're better than they were six to 12 months ago."

Despite the good news on the sustained pickup in hiring, the pace of job growth hasn't been strong enough to make a dent in the large pool of long-term jobless workers who have left the workforce. Some have gone back to school; some have given up looking, others have "retired" hoping to get by on their savings. As job prospects brighten, those people typically begin looking again. But, according to the BLS data, that hasn't happened yet: the so-called "participation rate" remained flat in March.

"Where are the people throwing their hat back in the ring?" said Diane Swonk, chief economist at Mesirow Financial. "Long term unemployment is over six million. That's really disturbing. They're running out of unemployment insurance and tapping into disability, welfare, applying for food stamps. It's tough stuff."

Economists divided
Economists are divided about whether the drop in the jobless rate has been caused, in part, because the pool of people not included in the official workforce is so large. Last month, according to the official count, 160,000 people joined the labor force. Since the economy produced more than that many new jobs last month, the unemployment rate went down. But if that number rises faster than the number of new jobs created, the jobless rate moves higher.

“It is always possible that as the job market improves, people will start looking again and the unemployment rate could go up,” said John Hancock's Cheney. “But the normal pattern is once it starts coming down as rapidly as it has over the last few months, it keeps on going down.”

Despite the pickup in the pace of hiring, the high jobless rate will continue to keep a lid on wages and depress consumer spending. Most forecasters expect the U.S. economy to grow at around 3 percent this year, which would keep the job market growing at about the current pace.

Though that's a big improvement from the past two years, that pace won't be fast enough to bring the jobless rate down quickly. If the rate is only falling by 0.1 percent each month, it would take another three and a half years to get back down to the pre-recession level, according to Paul Ashworth, chief US economist at Capital Economics.

The stubbornly high jobless rate is another indication of the depth and severity of the recession that produced it; post-war economic recoveries have typically produced significantly higher growth rates than the current rebound.

But comparisons to past recessions may also be skewed by the extraordinary government response to the 2008 financial collapse and spike in layoffs. Drew Matus, a senior economist at UBS, thinks that the government's emergency extension of unemployment insurance may be artificially increasing the unemployment rate.

We have a large number of people unemployed for 27 weeks staying in the labor force to collect extended benefits, he said. "That's boosting the (jobless) rate. You can't compare the rate in 2011 to the rate we saw in 2004."