A surprising second consecutive fall in US unemployment figures has caused analysts to change their outlook on the economic situation
The US economy experienced net private job creation in February for the first time since May. The 46,000 increase was the largest in a year.
While the Bureau of Labour Statistics (BLS) noted that much of the gain was due to 'special circumstances' ' post-Christmas lay-offs in retailing failed to materialise since there was little pre-Christmas hiring ' the truth is that seasonal adjustment factors all come out in the wash. The lack of holiday hiring depressed seasonally adjusted retail payrolls in the months before Christmas.
Including government jobs, non-farm payrolls rose 66,000 in February, the first increase since July. This will come as a rude awakening to the likes of New York Times columnist Paul Krugman, for whom the Bush tax cuts were a one-way ticket to permanent purgatory.
As recently as 22 February, the Princeton economist wrote: 'The good news to date consists mainly of evidence not that things are getting better but that they are getting worse more slowly. New claims for unemployment insurance have fallen; that means fewer people are being laid off, but not that laid-off workers are finding new jobs.'
Both Krugman and Federal Reserve chairman Alan Greenspan seem to have been a little behind the eight ball.
Greenspan amended his outlook last week, changing the text of prepared testimony he delivered only eight days previously to reflect a more optimistic outlook. It's doubtful Krugman will change his tune anytime soon.
The biggest surprise in February's employment report was the drop in the unemployment rate to 5.5% in February from 5.6% in January. The January decline from 5.8% in December was considered a fluke. Now we have back-to-back flukes.
The unemployment rate is a lagging indicator. The only reason it's important is that it will change Wall Street economists' views on when the Fed will begin to raise interest rates.
In case you dozed through the last few months of research, these folks have been assuring us that the Federal Reserve never starts to raise rates until the unemployment rate starts falling.
No one expected unemployment to head down until the second half of the year. Now they have to come up with a new story.
Given the stellar growth of productivity during the slump, output per hour worked in the non-farm business sector rose 5.2% in the fourth quarter of 2001, 'you really can't expect strong hiring,' says Susan Hering, senior US economist at UBS Warburg.
Manufacturing employment fell 50,000 last month, the smallest decline since December 2000. Strong auto sales seem to be translating to increased hiring in motor vehicle industries, which added 26,000 workers in February, the first increase since July and the biggest since August 1998.
The increase was another of the BLS's 'unusual seasonal employment patterns,' reflecting the reopening of auto plants following a shutdown. Why didn't the BLS mention that the 23,000 decline in motor vehicle jobs was a result of a plant shutdown unusual in the month of January?
The manufacturing workweek inched up 0.1 hour to 40.7 hours. That's up from a cycle low of 40.3 in November.
It was disappointing to see the workweek for the overall economy hold steady at 34.1 hours for the fourth consecutive month. Employers usually crack the whip a little harder on the current team of workers before they go out and hire new bodies.
Still, the combination of the small increase in payrolls and unchanged workweek produced a scant 0.1% increase in the index of aggregate hours worked (a proxy for output), the second gain in the last 10 months.
Last week's employment report sent bond prices lower, which is something of a feat given what a lousy month March has been for treasuries. Since the close of trading on 28 February, yields on treasury securities were up as much as 47 basis points by 11 March.
The rise in long rates ushered in predictable warnings that it would nip the recovery in the bud. This is one of those old saws that surfaces as soon as the previous bromide has been fully digested. ('This time is different. The Fed's rate cuts won't work.')
The rise in long rates won't derail the recovery 'as long as the Fed isn't tightening,' says Paul Kasriel, director of economic research at the Northern Trust Corp. in Chicago.
The rise in rates reflects increased demand for credit or expectations thereof. 'Unless it's ratified by the Fed, it can't substitute for a tightening of policy,' Kasriel says.
Economists who have grudgingly accepted that a recovery is upon us are now directing their forecasting acumen toward the second half of the year. We're now asked to believe that the economy, once in forward motion, will roll over and die of its own accord. It's as if the growth spurt was too much for it to bear.
Where economists learned their economics is anybody's guess.
Maybe they should move from economics to physics and Newton's law of motion. An object in motion tends to stay in motion with the same speed and in the same direction unless acted upon by an unbalanced force.
Guess what the unbalanced force is in this case.
Bloomberg New York newsroom
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