To the victor go the spoils. During last year’s election, President Obama was sometimes said to be desperate not to lose because he couldn’t stomach the thought of Mitt Romney taking credit for a stronger economy. Well, he doesn’t have to worry about that now. And with job growth accelerating and the unemployment rate dropping to 7.7 per cent, its lowest point since December, 2008, things are indeed picking up—and it’s silly for the President’s critics to deny it.
The jobs report for February, which was released this morning, was pretty solid all around—very solid if you consider that the economy had just been hit by an increase in payroll taxes and income taxes on high earners. According to the payroll survey, employers added 236,000 jobs, the highest figure in a year. I always say it’s a mistake to put too much stock in one month’s numbers. But during the past four months, job growth has averaged 205,000, which is a pretty decent number, and one that is high enough to bring down the unemployment rate, albeit gradually.
The job gains were distributed widely, with construction, retailing, education, and health care showing particular strength. The only areas to shed jobs were transportation and the government—federal, state, and local—which, during the past five months, has reduced its head count by more than a hundred thousand. (There’s a figure you don’t hear on Fox News.) The average work week ticked up to 34.5 hours, and average weekly earnings jumped more than three dollars to $821.79.
After the effects of the payroll-tax increase, most workers are still a bit worse off than they were at the end of last year. So far, though, this doesn’t appear to be having much of a negative impact on consumption and job growth. Although some retailers, such as Walmart, are said to have seen sales slowing, others have held up pretty well. And spending on services, such as entertainment and travel, appears to be increasing. The Institute for Supply Management said earlier this week that its index of non-manufacturing activity rose to 56 in February from 55.2 in January. (Any figure above fifty means output is expanding.)
Of course, the usual caveats apply. Compared to previous recoveries from deep slumps, this one is still pretty modest, and the labor market is far from healed. Twelve million Americans are officially classified as unemployed, and 4.8 million of them have been out of work for six months or more. In addition, some eight million people are working part-time for economic reasons, and another 2.6 million are classed as “marginally attached to the work force,” meaning they wanted a job but hadn’t actively looked for one in the latest four-week period. Taking all these folks into account, the so-called under-employment rate is 14.3 per cent. Even that has come down a bit, though. This time last year, it was 15.6 per cent.
Adopting a longer-term perspective, there are ample reasons to be concerned. As Catherine Rampell points out at the Times’s Economix blog, compared to December of 2007 almost six million fewer Americans are employed full-time, and the number of people working part-time has risen sharply. Another enduring issue is the question of why, as the economy has recovered, more people haven’t returned to the work force. Five years ago, at the start of the Great Recession, sixty-six per cent of the civilian population over the age of sixteen was in the work force. Today, the figure is 63.5 per cent. Even as the unemployment rate has come down over the past year or so, the participation rate has continued to tick down, which is the opposite of what you might expect. When early retirees and others who aren’t working or looking for work see more jobs being created, they have more of an incentive to send out their résumés. But that hasn’t happened. In February, the number of people in the labor force fell by 130,000.
Looking ahead, as the labor-force participation rate picks up, the decline in the unemployment rate will be harder to sustain. But even after taking all of these qualifications into account, it is hard to argue, as many Republicans are doing, that things are still going to the dogs. When Alan Krueger, the chairman of the Council of Economic Advisors, said in a blog post that the recovery “is gaining traction,” he was only stating the obvious. In fact, the pickup in job growth, while it is obviously a positive for the White House overall, is good enough that it actually presents the Obama team with something of a tactical problem.
As part of the battle over the sequester, President Obama and his allies are arguing that the across-the-board spending cuts will do substantial harm and need replacing with a package including revenue increases. But if the economy continues to tick along nicely, this argument will become harder to make. Krueger was careful to point out that the reporting period for today’s numbers came before the sequester went into effect, and he added: “The Administration continues to urge Congress to move toward a sustainable Federal budget in a responsible way that balances tax loophole closing, entitlement reform, and sensible spending cuts, while making critical investments in the economy that promote growth and job creation and protecting our most vulnerable citizens.”
We will have to wait another month to see if the sequester has had any effect on employment. But for now the story is a bigger and reassuring one. American businesses are hiring, and fewer people are out of work. Today’s report exceeded expectations. Compared to what is happening in many other advanced countries, the U.S. economy is doing pretty well. “Despite the expiry of the payroll tax cut, higher gasoline prices and government spending cuts, the recovery is gathering momentum,” said Paul Ashworth, chief U.S. economist at Capital Economics.
Somewhere in La Jolla, surely, Mitt Romney is thinking about what might have been.
