Today’s jobs report presented good news about the US labor market. The unemployment rate dropped to 7.7%, the lowest it’s been in over four years. Averaging payroll gains over the last three months shows the economy adding jobs at a rate of 191,000 per month. This is solid — but far from spectacular — job growth, fast enough both to absorb new entrants into the labor market and to bring down the unemployment rate at a slow but steady pace.
Looking beneath the hood of the report shows more good news. Many economists were worried that the increase in payroll taxes would suppress consumer spending. This didn’t seem to happen in February, with the economy adding around 48,000 jobs in the retail, leisure, and hospitality industries. It could be that the payroll tax increase didn’t have a large effect on consumer spending, ceteris paribus, or that the increase was offset by households’ improving balance sheets.
The best news in the report came from the construction industry, which added 48,000 jobs over the month — the largest monthly change since early 2007. The construction payroll numbers are consistent with the story that the Fed is succeeding in stimulating the economy through housing by lowing mortgage interest rates.
Will March be as good as February? Remember that the sequester is not reflected in these numbers, and that the payroll tax increase could show up in the March numbers even though it seems not to have played a large role in February. Caution is warranted.
And though February was a good month, please don’t let that confuse you: The labor market is still in terrible shape.
Over twelve million American workers are unemployed. The unemployment rate is still way too high. The share of the working age population employed in jobs is staggeringly low — outside the current labor market downturn, you have to go back three decades to find the share as low as it is this month. Teenage unemployment is over 25% — the same rate of overall unemployment at the height of the Great Depression. These young workers are missing the opportunity to develop valuable labor market skills and to build their careers. Adult workers without high school diplomas are facing an unemployment rate of over 11%. Nearly eight million workers are employed part time for economic reasons.
And nearly five million workers have been unemployed for longer than six months. The long-term unemployed’s share of total unemployment actually increased this month.
February was a strong month, but our labor market remains in crisis. This is the immediate, most pressing problem facing the United States today. I fear that we will be dealing with its fallout for years to come.