Nonfarm payrolls are reacting to growing economy

Still a long road ahead

Nonfarm payrolls increased by 192,000 last month, including a relatively healthy 222,000 in the private sector, suggesting that the acceleration in economic activity is finally beginning to spur a spate of new jobs. A more formal look at the report is available in my analysis at Examiner.

Before we start popping the corks on the champagne bottles, it’s important to point out that employment is finally back to where it was when the recession officially ended. So let's not obscure the fact that the road to recovery will be a long one.



Moreover, taking a look at the strong economic recoveries that followed the steep recessions of 1974 and 1982, job growth has lagged in the wake of the current recession amid the uneven and fragile recovery that ensued following the end of the current slump.



But economic activity and job growth are closely correlated (see chart below) and the recent spurt in economic activity is generating employment per various surveys, and further gains in economic activity are likely to translate into an acceleration hiring as anxiety over the durability of the expansion eases.



Of course, this outlook assumes there are not unforeseen shocks that would stifle the expansion.  As I’ve already detailed, $100 per barrel oil will not cause the economy to stall. One reason: the price of natural gas and coal, major forms of energy that heat homes and generate electricity, has been well behaved.

Finally, a quick look at the government’s nonfarm payroll data since the recession began is also encouraging. Private sector payroll growth has been slow to catch fire, but with the exception we saw in January, the direction has been encouraging.



According to the Labor Department, payroll employment has increased by 1.3 million from its low point last February, or an average of 106,000 per month.

Over the same period, private-sector employment rose by 1.5 million, or an average of 127,000 per month.
 
Modest, yes, but not enough to significantly take a bite out of the unemployment rate since economists generally agree that 150,000 new jobs are needed each month in order to handle new entrants into the labor force.

That’s why the puzzling decline of 2.4 million in the labor force over the last two years – likely related to discouraged workers – has played a big role in the falling unemployment rate.