Don't get too excited about last Friday's employment report.
It was heartening to see almost 200,000 jobs created and the rate of unemployment tick down again, to 8.9% this past month. Some would say that another decline in the unemployment rate would confirm that last month's big move down of 0.4% was indeed the beginning of a trend. But I doubt it. The national labor force participation rate (the percentage of adults who are working or who are seeking work) is at 64.2%, down from 66% in December of 2007 when the recession began. Had the participation rate been 66%, the Wall Street Journalreported Saturday, the unemployment rate would have been 11.5%.
There are several million unemployed who have stopped looking for work. They might have gone back to school, are staying home with the kids, or sitting on the couch watching the tube. Historical trends would lead us to believe that, as jobs are created, these people will rejoin the work force with the hope of finding a job. I expect the number of jobs created each month to go up, but I expect the jobless rate to go up as well as the denominator to the equation expands with the surge of hopeful job seekers.
I do think job growth will expand, and nicely.
Initial jobless claims have dipped meaningfully below 400,000. There were 368,000 last week, the lowest since May, 2008. The four-week moving average of initial claims stands at 388,500, the lowest since July 2008. Also, the ISM manufacturing index and the ISM non-manufacturing index both have an employment sub-index contained in all their data. The manufacturing employment measure is now the highest it has been since 1973. Manufacturing is only about 15% of the economy, so the non-manufacturing index takes on more importance since non-manufacturing (service) covers about 85% of jobs. Its employment measure is now the highest it has been for several years. Expect this background data to lead to more jobs on a monthly basis in the big Labor Department monthly poll. 136,000 jobs a month on average have been created the last three months. While better than we have seen, it is barely enough to cover the 100-125,000 new entrants into the work force each year.
And we desperately need private payrolls to expand.