On Friday, April 1, the Labor Department Came Out With the March Jobs Report.

As usual, in reporting on the new March numbers, the media focus was on two key indicators:

Nonfarm payroll employment — which increased by 216,000 in March.
The unemployment rate — which was 8.8 percent, continuing a four-month, 1.0 percent decline from 9.8 percent in November 2010.

Labor Department Jobs Report Trends — at a Glance

The following graph of the U.S. unemployment rate since January 2008 shows both the hopeful trend of the last few months and how far we would have to go to return to the pre-recession norm.

But it is also worth noting, as shown by the second, much longer-term graph, that the sub-5 percent unemployment rate of much of the 90s and the mid-2000s was unusually low by historical standards. On the other hand, lingering unemployment of over 8 percent is also very unusual.

This next graph shows the trend of monthly growth in U.S. employment, displaying a positive trend of improvement since June 2010, but one dwarfed by the losses during the recession:

A slightly different view compares total jobs to the same month of the prior year. This also shows how much deeper the hole was than the recovery to date:

Interpreting The Latest Official Jobs Numbers: How Good Are They?

March Jobs Report Received With Cautious Optimism

Optimistically, a New York Times news analysis said:

After 12 months of up-and-down job creation, the significant increase in March suggested that maybe, just maybe, the economy was gaining enough strength to grow and bring unemployment down substantially this year.

A New York Times editorial a few days later was more cautious, noting some troublesome signs of weakness in the labor department’s March data, stating “for each hopeful development, there is a caveat.” The caveats include:

More unemployed people found jobs in March. But over all, the number of people who have found work in the past year has been dwarfed by the masses who are missing from the labor force, including young people without jobs and without prospects and others who have given up looking for jobs. If sidelined workers were counted in the official statistics, the jobless rate today would be 9.8 percent.

So what to make of the data? Incremental gains are welcome, but their durability is much in doubt. Higher oil prices, among other things, could undo tenuous job gains. Politicians’ unwillingness to do what is needed to reinforce the recovery is an even bigger threat.

Nagging Labor Market Weaknesses Pointed Out

James Pethokoukis of Reuters had a nice summary of reasons for the Administration, as well as the American people, to see the jobs report glass as still half empty (at best):

1) Let’s not overstate the strength of the report: a) based on last two nasty downturns, 1974-75 and 1981-82, jobs should be growing roughly 400K a month; b) nominal wage growth over both the last quarter and year have both been 1.7% vs. 2.1% inflation; c) the number of people who have been unemployed less than five weeks rose by 59K, first increase since November; d) the share of the unemployed who have been unemployed for more than 26 weeks also hit a record high of 45.5 percent.

2) Political scientists have found only so-so correlation between unemployment and presidential election results. It’s really income growth that counts. And over the past year — and past two months — that has been negative. Jobs are being created, but they are not so high paying as before. Note that White House economic adviser Austan Goolsbee said today that he does not expect strong income growth unless the unemployment rate moves lower.

The New York Times cautioned:

March’s numbers also offered more than a few cautionary signs that the national economy was not cured of all its ills. The ranks of Americans who have been without a job for 27 weeks or more remain painfully high, at more than six million. And the labor force has shrunk steadily since the beginning of the recession, to a point that just 64.2 percent of adults are either in the work force or looking for a job. That is the lowest labor participation rate in a quarter-century.

Jobs Growth Still Falling Far Short

While there are other relevant figures, the unemployment rate is the common headline-grabbing employment statistic, and the one politicians will be hurling about from now until Election Day 2012. The other key figure, job growth, is important to most people only to the extent more jobs means more opportunities for the unemployed to find work and for others to change jobs.

The jobs growth numbers must be seen in proper perspective. According to a recent article in MarketWatch:

The U.S. has to add at least 125,000 jobs a month just to keep up with natural growth of the labor force. Companies would have to hire twice as many workers each month over a sustained period to drive down the jobless rate to pre-recession levels of around 5%.

Heidi Shierholz of the Economic Policy Institute remarked that there are still five unemployed workers for every job opening. Shierholz noted that even if 200,000 jobs are added each month, the employment rate will not reach its pre-recession level until 2019.

Democrats’ Political Spin on the March Jobs Report

As might be expected, the Obama Administration put a very positive spin on the March jobs numbers:

Administration officials hit the same points over and over . . . . The private sector has added, on average, 188,000 jobs in the first three months of 2011, and 1.8 million jobs since the recovery began. March was the 12th consecutive month of private sector job growth.

As the Administration talks this up, it may find a way to use this progress to paint the Republicans into a corner regarding their positions on the Obama stimulus spending and GOP-pushed mid-recovery budget slashing:

“If the economy continues to improve over the next year, the fact is it will strengthen President Obama’s political position,” said Geoff Garin, a Democratic pollster. “And,” he added, “if the economy slows down in the next year, the Republicans put themselves in a position to take a good share of the blame for that, because now a good case could be made that the president had the jobs numbers moving in the right direction until the Republicans pushed through their own fiscal policies.”

Republicans’ Opposing Views

Lawrence Kudlow pointed to a way for Republicans to take credit for the good news (as long as it lasts):

The wake-up in job creation is a function of Republican policy. After all, for two years the Obama Democrats spent themselves into oblivion, with over $1 trillion of so-called big-government stimulus. Didn’t work. By the end of last year, that failed stimulus wore off, and it was replaced by Republican tax cuts.

Most businesspeople I know — folks who work in both large and small companies — welcomed the tax-rate freeze as a sign that maybe the war against growth, capital formation and small business was either coming to an end or at least a two-year truce.

So, presto, the jobs numbers start jumping in the new low-tax year. . . .

So it looks like Republican tax cuts have saved Obama from himself.

George’s take:

Obama and Democrats can counter that it wasn’t the tax-cuts-for-the-wealthy portion of the tax bill that had an impact, but the other tax changes supported by the Administration, including:

• Allowing businesses to expense certain equipment purchases.
• Cutting the employee portion of the Social Security payroll tax from 6.2% of wages to 4.2%.
• Continuing extended jobless aid for the long-term unemployed.
• Continuing a college-tuition tax credit for some families.
• Expanding the earned-income tax credit.

Though Republicans didn’t admit it, and Democrats shied away from using the now-maligned term, these aspects of the December 2010 lame-duck tax compromise amounted to a significant economic stimulus effort.

Back to the GOP view. House Speaker John Boehner’s blog says:

While there are encouraging signs in these statistics, there remains underlying weakness in the labor force. The unemployment rate fell among almost every demographic, but rose for African Americans to a stubbornly high and disproportionate 15.5 percent. In addition to the 13.5 million Americans officially included in the unemployed tally, more than 900,000 Americans were not counted as unemployed because they hadn’t sought work, believing no jobs were available to them. The average duration of unemployment continued to climb in March to 39 weeks, up from an average of 32 weeks a year ago. And more than 45 percent of those seeking work have been unemployed for more than 27 weeks.

Boehner then pitches federal spending cuts as the job creation magic bullet:

Earlier this week, the House Ways & Means Committee . . . heard from a range of economists on the negative impact historic deficits and debt are having on economic growth and job creation. Stanford University Professor Dr. Edward P. Lazear testified at the hearing, “perhaps the largest threat to long term growth is the recent high level of government spending, which will result in high deficits or will require that we raise taxes substantially. Either course impedes economic growth.”

Republicans are listening to economists and the American people, and working to cut spending to help end the economic uncertainty that is making it harder to create jobs.

George’s take:

I lack confidence in the average voter’s economics savvy and fear too many blindly accept the notion that somehow budget deficits cause unemployment. I learned from a highly regarded professor that there is one time when deficit spending is not bad, but desirable — in the midst of a recession.

I know not all economists agree, but I’ll stick by Professor Jerry Gustafson and Nobel winner Paul Krugman, who said: “Many economists, myself included, regard this turn to austerity as a huge mistake. It raises memories of 1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession.”

That is not to say establishing a credible long-term plan to tackle structural sources of budget deficits is not important — it is. But that is a whole different ball game than the sort of cuts “fiscal conservatives” are promoting in the midst of high unemployment.

Finally, the conservative Heritage Foundation notes that the job-creation rate is still low, and uses that fact to pitch a pet policy change – corporate tax reduction:

While this report is mostly good news, the rate of job creation is still too slow. It will take many years to recover to full employment if job creation is just over 200,000 new jobs per month. One way that the rate of job creation could be sped up is a reduction in the corporate tax rate.

Conclusion

There are many reasons to be cautious about reading too much into a little good news — and many reasons to consider further job-creating policy changes, whatever they may be. But a guarded optimism based on the March 2011 unemployment-rate-related news is further supported by some less-well-know measures, including staffing industry employment, often considered a leading indicator.

Politicians will be watching each jobs report from now until Election Day 2012, and spinning the numbers their way. Educated voters would do well to develop a more nuanced and critical vision of the numerous relevant job-related economic indicators.

Many thanks to Beth Hanson for her assistance with this series.

Related Reading:

Labor Markets and Business Cycles (CREI Lectures in Macroeconomics)

The Economics of Labor Markets (with Economic Applications and InfoTrac Printed Access Card)

Reefer Madness: Sex, Drugs, and Cheap Labor in the American Black Market

Markets of Sorrow, Labors of Faith: New Orleans in the Wake of Katrina

The Redistribution Recession: How Labor Market Distortions Contracted the Economy