I neglected to comment on the Bureau of Labor Statistics’s March 2010 unemployment report, released on Thursday:
Nonfarm payroll employment increased by 162,000 in March, and the unemployment rate held at 9.7 percent, the U.S. Bureau of Labor Statistics reported today. Temporary help services and health care continued to add jobs over the month. Employment in federal government also rose, reflecting the hiring of temporary
workers for Census 2010. Employment continued to decline in financial activities and in information.
Any increase is welcome, however, after considering the employment details I think there are reasons for us to continue to be concerned. First, half of the new jobs are concentrated in government and health care and both of those are dependent wholly or in large part on tax dollars. Growth in the portions of the economy that depend on tax dollars without growth in the portions that don’t means that the portions of the economy that depend on tax dollars will impose additional drag on the portions that aren’t going forward or institutionalizes a higher level of government borrowing.
At this level of employment growth how long will it take before the unemployment rate begins to go down? The answer is forever. The number of jobs our economy needs to add every month to deal with what’s quaintly referred to as the “natural increase” is roughly the number of jobs that were added in March. Consider this graphic illustrating the changes in employment after a recession from the Minneapolis Fed:
Clearly, for anything but the most phlegmatic of recoveries we’re going to need to see signficantly more jobs being created than this and they’ll need to be created in sectors other than government and healthcare. It bears mentioning that following the last recession the areas other than government and healthcare that added jobs were financial and construction. Somehow I can’t imagine either of those sectors adding a lot of jobs in the near future.
Update
James Hamilton points out how recent developments are good news:
True, 48,000 of the 162,000 new payroll jobs represented temporary Census positions. But those people are nevertheless now working rather than unemployed, and earning a salary with which they can buy goods and services or avoid bankruptcy and foreclosure. It’s also true that another 40,000 of the March gain came from temporary help services, but that’s often where employment growth first shows up. And I acknowledge that 162,000 isn’t enough to bring the unemployment rate down, which remained stuck at 9.7% for March. Even so, this is enough better than what we’ve been seeing and than we could have seen that I personally am quite relieved.
Much of Dr. Hamilton’s post from which that quote is taken is devoted to increases in light vehicle sales. Do we feel that it’s reasonable to expect that auto manufacturing will be the engine that will pull the economy out of recession?
Also, see Phil Izzo’s summary of the report which concludes with a quote from Joshua Shapiro of MFR Inc.:
While the labor market continues to improve , it is doing so at a relatively slow pace. Moreover, with cost-cutting remaining a key part of many corporate business plans, we continue to believe that sustained private sector job gains will follow a moderate trend rather than prove to be a mirror image of the steep cuts that took place on the downside
David Altig of the Atlanta Fed sums up the report:
What does seem clear is that the pace of net job creation is still well below the levels required to appreciably improve the unemployment rate or to make a sizable step toward regaining the eight million-plus jobs lost since the beginning of the recession. Updating a calculation referenced in a speech by Atlanta Fed President Dennis Lockhart on Wednesday, at a pace of 162,000 jobs added per month and at the current labor force participation rate, unemployment this time next year would still be just north of 9 percent.
