The consensus view of the March jobs report is that it was pretty good — slightly above expectations, and evidence that the labor market finally is in the midst of a self-sustaining recovery.
The Labor Department said on Friday that the economy added 216,000 jobs and that the unemployment rate dropped to 8.8 percent from 8.9 percent in February. That is down from a high of 10.1 percent in October 2009, although at this rate it will be years before the economy replaces the 8 million jobs lost during the recession. The gain is well below the pace of past recoveries in the ‘90s, when it was common to see job gains of 400,000 or more in a single month. And it is far below the 500,000 that Vice President Biden has predicted.
The job losses of early 2009 — which were in the range of 500,000 to 700,000 a month — remain a shocking historical fact, far worse than the losses of any downturn since the 1930s. Given the sobering context, the latest jobs report has been taken in stride.
“Altogether, we characterize this as a solid employment report and moderately better than expectations. On a trend basis, labor market conditions continue to improve at a moderate pace and the strength in services payroll growth is an encouraging sign that job creation is becoming firmly entrenched,” Barclays Capital economist Michael Gapen wrote Friday in a note to investors. He doesn’t expect the Fed to alter its stance on policy, and that the Fed will finish its asset purchase program in June, as expected. Many economists expect the Fed to keep its interest rates where they are until early 2012.
At least one analyst, however, says the labor market is recovering faster than some people may realize. Ashish Shah, co-head of credit at AllianceBernstein, says the decline in the unemployment rate and the growth in the jobs number are sending different signals. The jobs number, based on a survey of employers, or establishments, is pointing only modestly higher. Yet the unemployment rate, which is based on a household survey, is falling at a fast clip — down a full percentage point from November.
“Historically speaking the establishment survey (payrolls) and household survey correlate pretty well. We have had the household survey which is used to calculate the unemployment rate far outperforming the establishment survey over the last four months,” Shah said. That is because the household survey and the unemployment rate have lagged the establishment survey. He said the drop in the unemployment rate since November is a “huge move.
Sooner or later, the true strength of the jobs market will become more apparent to investors and policy makers. He expects that shift to occur during the next few months. As a result, Shah believes there’s a risk that the Fed will end its asset purchases sooner June. And he believes that the Fed could start to raise interest rates before next year.
“That is the reason why we feel the risk is that the Fed tightens faster rather than later,” he says. It’s still possible that some external factor--such as a spike in oil prices — will slow the economy and compel the Fed to keep rates low. But the jobs market — a huge factor in the Fed’s decision-making process — may be pointing toward a shift in policy sooner rather than later, according to Shah.
