Roughly one year ago, many of us were encouraged by a string of positive jobs reports which showed the economy was adding on average 275,000 jobs per month. And then came the spring swoon, ushering in a long stretch in which the economy struggled to add even enough jobs to keep up with population growth. While the unemployment rate continued to fall slowly throughout the year, much of that progress was due to workers dropping out of the labor force altogether.
So while the Labor Department’s employment situation reports have been generally positive since November of last year, economy-watchers have been wary of declaring the beginning of a robust labor market recovery just yet, especially when tax increases and spending cuts are almost certainly taking some of the spring out the economy’s step. And with today’s announcement from the Labor Department that the economy added just 88,000 jobs in March, those fears would appear to be legitimate.
But, you say, the unemployment rate fell last month, from 7.7% to 7.6%. What gives? It’s important to remember that the new-jobs figure and the unemployment rate are derived from two different surveys. The former is gleaned from a survey of business, called the “establishment” survey, while the latter is drawn from a poll of ordinary citizens, called the “household” survey.
And, oddly enough, the establishment survey — which gives us the disappointing 88,000 new-jobs figure, was actually a much better report than at first glance, while the household survey, from which we draw the unemployment rate, is actually a lot worse than the headline drop in the unemployment rate suggests.
While 88,000 jobs per month is surprisingly low — economists were expecting somewhere near 200,000 new jobs in March — there were upward revisions in the estimates for job growth in January and February. The new job growth estimate for January was revised from +119,000 to +148,000, and the February estimate was revised upwards from +236,000 to +268,000. Taken together with the March job growth estimate, these revisions means there are 146,000 more jobs than we had previously thought — a much more respectable figure.
On the other hand, though the unemployment rate dropped from 7.7% to 7.6%, this change looks to be almost entirely due to a decline in the labor participation rate, as nearly half a million people decided to drop out of the labor force altogether. This could be due to aging workers retiring, or because people have become so discouraged with the job market that they’ve just stopped looking. Either way, such a large decline in the participation rate is not indicative of a quickly recovering economy.
The report does perhaps show evidence that we’re finally feeling the effects of the recent payroll tax increases, as the retail sector shed 24,000 jobs. Another big drag on growth was the Postal Service, which let go 12,000 workers in March.
All in all, this is a disappointing report, but not as bad as it looks at first glance. The continued decline in the labor force participation rate is probably the single most worrying data point. We should expect that this number will decline as the workforce ages, but the speed of this decline can’t be explained just by demographics.
With any luck, we can put this lackluster report behind us next month, but today’s report gives us one more reason to believe today’s uninspired labor market will be with us for some time to come.