Economy watchers talk often about economic recoveries requiring a “virtuous circle.” In such a scenario, job growth leads to higher wages and increased consumer demand, which in turn leads to more job growth.
Tepid employment growth in the summer and fall of 2011 was barely enough to keep up with population growth, but the Labor Department’s announcement that this morning that the U.S. economy added 227,000 jobs last month, coupled with upward revisions of the two months prior, may mean that we finally have found our place in the “virtuous circle.” As Marcus Bullus, trading director of MB Capital says, “The U.S. economy having piled on more than 200,000 jobs a month three times in a row will dispel any impression that the improvement is a blip.”
A deeper look into the numbers provides even more reason to be optimistic:
- The labor participation rate, or the ratio of workers in the labor force to the total working age population, increased by 0.2%, allowing the unemployment rate to hold steady at 8.3% even though more people piled back into the labor force.
- Average hourly earnings for all employees rose by 3 cents, or 0.1%. A modest increase surely, but any growth in wages will have a positive effect on consumer demand.
- Government has stopped jettisoning jobs. One of the biggest drags on the recovery has been the fact that austerity on the state and local level has caused a huge decrease in the total number of government workers – 500,000 since President Obama took office. That trend slowed significantly this month, with government cutting just 7,000 jobs in all, down significantly from previous months.
The report didn’t come without any flies in the ointment. Roughly 20% of the jobs added occurred in “temporary help services,” known to most of us as temp jobs. These are obviously not the kind of permanent, middle-class positions that could sustain an economy long term. At the same time, the fact that businesses are increasing their reliance on temps means that they’re seeing an increase in demand that, if sustained, will eventually lead to full-time hiring.
And while the 227,000 number is significant, the economy still has a long way to go to reach pre-crisis employment levels. Rising oil prices, a debt crisis in Europe and political tension in the Middle East all loom as potential dampers on this nascent recovery. Still, the report represents a third straight month of significant employment growth, and if the trend continues we could see an unemployment rate below 8% by years end.