February 2013 Employment Report

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According to the Bureau of Labor Statistics’s (BLS) establishment survey, non-farm payroll employment rose by a greater-than-expected 236,000 jobs in February. The unemployment rate (based upon the BLS’s household survey) edged down by 0.2 percentage point to 7.7 percent. All private supersectors reported some growth in February; Construction and Professional & Business Services were the “standouts.” Government employment, by contrast, contracted at the federal and local levels. The change in total non-farm payroll employment for December was revised from +196,000 to +219,000 while the change for January was revised from +157,000 to +119,000. 

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Although the headline numbers of the BLS surveys were fairly upbeat, many underlying details were less encouraging. For example, the ratio of employed persons to the entire population remained mired in the range seen since late 2009, which means employment gains have barely kept pace with population growth. Also, the number of people not in the labor force jumped by 296,000 (to a new all-time high of 89.3 million) in February. When one realizes the labor force also shrank by 130,000, it is not surprising that the unemployment rate dropped; put another way, a higher proportion of the shrinking pool of remaining workers found at least part-time work. 

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The civilian labor force participation rate (the share of the population 16 years and older working or seeking work) ticked down by 0.1 percentage point to 63.5 percent. One relatively bright spot was that the annual percentage increase in average hourly earnings of production and non-supervisory employees extended recent gains when rising to just over 2.0 percent. Thus, with the price index for urban consumers rising at a 1.6 percent annual pace, wages are at least holding steady in real terms (i.e., wage increases are keeping up with official estimates of price inflation). 

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However, full-time employment fell by 77,000 jobs, while part-time employment added 15,000. As stated previously, we suspect these trends may be related to the ObamaCare requirement that firms with 50 or more employees provide health care benefits to everyone working 30 or more hours per week. Many employers cannot afford that mandate and are avoiding it by cutting workers’ hours to below that threshold. 

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Employment is converging with the previous peak at a slower pace than all prior recessions going back to 1973; circles in the chart above indicate when previous recoveries reached their corresponding pre-recessionary employment highs. The economy still has 3.0 million fewer jobs than at the January 2008 peak. 

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The figure above presents a variety of forecasts related to when employment might return to the January 2008 peak (dashed line) or converge with the number of jobs that likely would exist had the recession not occurred (gray line). At January’s rate of job gains, it will take until March 2014 to recapture January 2008’s employment level (i.e., without adjusting for population growth).

To sum up, then, our assessment of this jobs report is that while it looks good at a distance, the warts and blemishes become more evident the closer one looks.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.