February Employment Report Paints Picture of An “Economy” on The Mend

According to the Bureau of Labor Statistics, the economy added 227,000 jobs in February, building on prior months’ gains, and painting a picture of a rebounding “economy.”  I enclose “economy” in quotation marks because it’s a valid picture as long as you take a short-term view and apply a narrow definition.  More on that later.  But first, let’s take a closer look at the data. 

Here’s the report:  http://www.bls.gov/news.release/empsit.nr0.htm.  According to the establishment survey, 227,000 jobs were added in February.  That’s a good amount, more than the 125-150,000 needed to absorb the growth in the labor force due to growth in the population.  And last month’s figure was increased dramatically to 284,000 from the previous estmate of 243,000.  It should be noted that while the February jobs figure is a good one, it’s a decline of 20% from the previous month.  While other economic data have supported the view of a reviving economy since roughly November, more recent data calls into question whether the momentum has been lost. 

According to the household survey, unemployment held steady at 8.3%.  Though the “employment level” jumped by 398,000, the civilian labor force grew by 476,000.  (That’s if you can believe the whole process by which the BLS makes workers disappear as unemployment is worsening, only to reappear later when the economy is adding jobs.)  My own calculation of unemployment – “U3a” – has unemployment declining by 0.1% to 10.7%.  (That’s because my calculation never dropped workers out of the labor force to begin with, so the growth in the employment level is enough to bring down real unemployment.)  Here’s my calculation, followed a chart of the data:  Unemployment Calculation     Unemployment Chart

The number of unemployed American workers has now fallen for seven straight months to just under 17 million workers (from a  high of 18.98 million workers in July of ’11), and the percentage of Americans working has also risen seven straight months.  Here’s the charts:  Unemployed Americans     Per Capita Employment

These are real improvements, but there’s still a very long way to go to put everyone back to work.

The fact that, at least superficially, the “economy” seems to be on the mend isn’t terribly surprising.  The continued high rate of deficit spending, projected to be about $900 billion this year, is pumping money into the economy faster than the trade deficit is sucking it out – currently at a rate of about $750 billion per year.  The payroll tax cut was extended, along with the Bush-era tax cuts.  So too was unemployment insurance.  And, I have a sneaking suspicion that, with the start of a new fiscal year in November for the federal government, procurement for federal programs has been accelerated, pulling forward government purchases and the economic stimulus that goes with it.  Finally, consumers are doing their part by foolishly taking on more debt once again.  The old pre-recession “let the good times roll” mentality is back.

The problem is that, if you expand your view of the economy to include the nation’s balance sheet, you quickly realize that what we’re witnessing is yet another debt-fueled sugar high.  Take away this extreme level of deficit spending and the party’s over real fast.  No one’s thinking about that now but it’s lurking right over the horizon.  Any number of things can bring it back to the forefront:  the next debt ceiling vote, the next downgrade of U.S. debt by Standard & Poor’s, the next bad treasury auction – anything.  It’s just  matter of time.  Then, if the deficit is cut without addressing the rapidly escalating trade deficit (see my next post), we’ll be back in a recession as bad as before.

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