Job Market Rebounds

The job market appeared to be more promising in February as hiring has picked up. Despite the cold winter, there is more hope that the US economy will break out of the slump this spring. After two months of weak growth in the labor market, non-farm payrolls have grown by 175,000 in February. Also, the unemployment rate has increased from 6.6 to 6.7 percent, but a large part of this was due to more people joining the workforce.

Screen Shot 2014-03-14 at 3.13.34 PM

Due to the fact that retail sales, manufacturing output, and housing have weakened in recently, this jump in the job market could be a step leading to less people worrying about the US economy. If the harsh winter really was the cause of sluggish sales, we may see a direct increase in sales as the weather improves. For example, Bob Evans Farms Inc. commented that the cold, especially in the Midwest, has been the cause of a downturn on sales. The company also commented that this means that they will have to lay off workers.

However, there are also positive signs- “For the first time in 46 months, more unemployed people found a job than dropped out of the workforce.” This shows signs that less people are discouraged to find work. This is also noticeable from the unemployment rate, due to the fact that more people are joining the labor force. In addition, a measure of people working part time who want a full-time job has fell to 12.6%, its lowest since November 2008. Another possible sign of a stronger labor market is the rise in average hourly earnings by 2.2% in the past year.

In my opinion, I believe the news about the labor force is good news, but I only see the recent job creation as having more of a neutral effect on the economy. The public only expected about 150,000 news jobs to be created. However with 175,000 new jobs actually being created, the labor market isn’t decelerating but it also isn’t accelerating. The actual amount of jobs for the economy to stay on track should be around 250,000 every month. Also, the recent job creation has implications at the Fed. The graph below shows a rise in the unemployment rate from 6.6 to 6.7. This buys the Fed more time to decide whether or not to raise the short-term interest rate from near zero once the unemployment rate drops below the 6.5% threshold. In terms of purchases, it still looks as though the Fed will still pull back its bond-buying to $55 billion this March.

Screen Shot 2014-03-14 at 3.13.55 PM