More Firms Are Finally Hiring

Practical Economics

More Firms Are Finally Hiring

It’s too early, though, for unchecked optimism.

Uncertainty is abundant, especially questions over energy supplies and prices as upheaval in the Middle East intensifies and spreads. Events elsewhere in the world may overwhelm U.S. economic growth. But for now, at least, Friday’s employment report shows an economic recovery on track and gaining momentum.

It’s not just the number of net jobs created -- 192,000 in February. Equally significant is the proportion of firms adding workers or least holding steady. A Labor Department yardstick measured that at 68.2% last month, the broadest in more than five years. It’s an indication that hiring is seeping out into the economy, spreading to additional industries.

Sponsored Content

The details of DOL’s February employment report back that up. The manufacturing sector, which began adding jobs last year after a decade of losses, continued hiring last month, to the tune of 33,000. Surprisingly, construction also added workers -- up 33,000, the first increase since last August. That more than offset a loss of 22,000 construction jobs in January, when harsh winter weather hampered work. In the service sector, health care, management consulting, financial activity, restaurants and hotels all posted gains.

In fact, the overall increase in employment would have been considerably stronger, had state and local governments not shed 30,000 from their payrolls. Prospects for more job losses on those fronts are strong, as states and cities face shrinking budgets.


While the latest monthly jobs report is heartening, a monthly increase of about 150,000 net new jobs is needed just to handle new entrants into the labor force. We expect a monthly average of a bit more than that -- about 170,000, which will boost the numbers on payrolls by about 2 million this year. Last year’s increase was less than half that -- 91,000 shy of 1 million.

The payroll growth will be sufficient to keep the unemployment rate around 8.9%, where it stood in February. But don’t be surprised if it rises over the next few months. As more people are hired, job seekers who had given up looking and were no longer considered unwillingly jobless will resume their search. They’re once again counted as unemployed, driving the rate up. But this actually signals growing confidence.

Although there’s ample evidence for some optimism, big challenges remain. If energy prices continue to go up and don’t ease later in the year, company hiring will be put on hold again, as managers fret about a relapse into recession. What’s more, there’s still room for many companies to expand output without adding workers: for the fourth month in a row, the average workweek held steady at 34.2 hours -- well below the 34.7 hours tallied before the recession. That means employers can expand the hours of those already on the payroll rather than hire additional bodies.

Another cloud over the labor market: The prospect of a $60-billion cut in federal spending mulled by members of Congress. According to Federal Reserve chairman Ben Bernanke, over the next 18 months the cut would reduce employment gains by about 200,000 more than would have been the case otherwise.


Overall, Bernanke’s assessment of the economy seems about right. In testimony to the Senate Banking Committee earlier this week, he said that the labor market is improving but at a slow pace, with the economy’s growth still fragile. “In the next few months we’ll see if this economy has enough momentum to keep growing.” That’s not the sort of stirring enthusiasm one wants to hear, but it is an accurate assessment of where we are.