The previous reports for job growth during December and January were on the disappointing side giving some concern regarding the overall economy. Fortunately, the employment report for February was better, helping to alleviate some of those concerns.
The number of net jobs created in February was 175,000, which was consistent with the gains we saw throughout much of last year. This compares to the more lackluster readings of 84,000 and 129,000 in December and January respectively.
For those who follow this report closely, you might note that the three-month average is still somewhat disappointing. Because this report can jump around on a month-to month basis, looking at the data over a longer time period is usually more relevant.
However, we need to recognize that weather has played a role in the economy in recent months. While Southern California has been basking in a warm and dry winter, much of the rest of the country has been unusually cold and snowy.
It is fairly difficult to try to quantify how much weather has played a role in terms of job growth in recent months. However, if this had been a normal winter, most assuredly the recent employment figures would have looked better.
Other data is also confirming that the employment outlook is improving. New jobless claims, which are a leading indicator, have been trending down over the past year, and are now at a level consistent with a reasonably healthy labor market. The national-unemployment rate, which ticked up .1 percent to 6.7 percent in February, has been coming down fairly consistently during the past year. While much of the drop in the unemployment rate has been due to a low participation rate, in February more people entered the labor force, which is why the rate increased slightly. In California the unemployment rate was 8.1 percent in January, which was still higher than the national figure of 6.7 percent in February. However, recently revised figures show that job growth in California for 2013 was considerably faster than the country overall. This helps to explain why the budgetary situation in California has improved, as more people working improves the state coffers.
As the country transitions to spring, my guess is that the employment figures will start to look better. Nonetheless, gains will still tend to be moderate, as this expansion has not produced the more rapid growth that we have experienced in previous business cycles. Most likely job gains will average around 150,000 to 200,000 per month, consistent with what has occurred in recent years.
If more people start to enter the labor force, the unemployment rate will not drop as quickly as it has over the past year. More people participating in the labor force would be a good thing, as it would allow the economy to grow faster.
If someone wants a gauge of the labor market, it is better to focus on the number of jobs being created, more so than the unemployment rate. Also, financial markets react more to the survey of businesses on employment versus the household one that calculates the unemployment rate. As labor markets gradually recover, we will start to see somewhat better wage gains. The growth in wages has averaged only about 2 percent in recent years due to the sluggish labor market.
Higher wages will provide a mixed picture for business. If wages are higher, the costs of operating a company will increase. However, if the economy is stronger, typically sales will increase, which should provide some offset to the higher costs. On balance the effect on profits should not be too significant.
Allen Wisniewski has been involved in finance for more than two decades. He lives in Culver City with his family.
