Friday, economists optimistically expect the Labor Department will report the economy added 180,000 jobs in February. This may look like a breakthrough number but caution should be the byword.
Monthly data is erratic and February gains should be read in the context of the paltry 36,000 jobs added in January. Going forward, budget cuts and union demands will trim government payrolls, and the private sector is creating very few permanent, non-government subsidized jobs.
After health care and social services, which are mostly government funded and temporary services are backed out, the private sector added only 49,000 jobs January—not much more than the 42,000 per month since employment began climbing again in January 2010.
Simply, demand for what workers make is not growing fast enough. Fourth quarter GDP growth was a paltry 2.8 percent. Growth above three percent is needed to significantly dent unemployment, because the working age population expands about one percent a year, and productivity increases about two percent.
Additional tax cuts, effective in January, are giving consumer and business spending some lift but being temporary, the effect is limited. The recent spike in gasoline prices, caused by rebellions in Libya, Egypt and elsewhere, is siphoning off consumer dollars and dampening business interest in adding employees. Stagnating new home sales and related woes in construction of strip malls, roads and schools plus falling prices for existing homes further burden the recovery.
Prior to the turmoil in the Middle East, economists were forecasting 3.5 percent growth for 2011, but the surge in oil prices will likely shave half a point—perhaps more—from this less than rosy outlook.