Unemployment Rate Likely To Hold At 8.3% In February

Payrolls climbed last month by 210,000, after a 243,000 rise in January, according to the median forecast of economists surveyed by Thomson Reuters ahead of Friday's monthly Labor Department report on February hiring.

Economists also expect Friday's report to show February's jobless rate holding at a three-year low of 8.3 percent. The decline in unemployment -- and whether it's sustainable -- has become an economic and political hot-button issue.

Job gains lead to income growth that supports consumer spending, which accounts for more than 70 percent of U.S. economic growth.

Private employment rose 223,000, after a 257,000 gain in January, according to the survey. Manufacturing is expected to have added 25,000 jobs in the month, down from 50,000 in the prior month.

We may see smaller job gains in manufacturing, but overall if we look across industries, most industries are hiring, said Gus Faucher, senior economist at PNC Financial Services in Pittsburgh.

If hiring meets or exceeds expectations, it would mark the fourth time in half a year that payrolls have increased by at least 200,000.

Building Up to a Good Month

It looks like February was another good month for the labor market, Faucher said.

Many indicators released ahead of Friday's non-farm payroll report have been providing guidance for economists on the condition of the labor market.

The initial jobless claims report for the week ended Feb. 18 may shed some light on what to expect this Friday as it coincides with the period the Labor Department conducts its survey for the February employment report. In that week, claims for U.S. jobless benefits held at 351,000, the lowest since March 2008. Economists are calling for another modest drop to 350,000 in Thursday's jobless claims report.

We are seeing claims falling across industries as well as across geographic areas of the country, said Michael Brown, an economist at Wells Fargo Securities LLC in Charlotte, N.C. Last week, there was not a single state that reported more than 1,000 initial first-time filings for unemployment insurance.

Other recent labor market indicators have also been mostly positive.

Companies added 216,000 workers to their payrolls in February, boosted again by a surge in services sector employment, ADP said Wednesday.

The correlation between private-sector employment growth in the ADP survey and the Bureau of Labor Statistics payroll employment report has been 0.95 over time, which indicates another solid month for payroll employment in February, PNC Financial Services Chief Economist Stuart Hoffman wrote in a note Wednesday.

Separate reports showed the services sector, which makes up almost 90 percent of the economy, expanded at its fastest pace in a year last month. Meanwhile, the ISM manufacturing index came in weaker than expected after posting three consecutive months of gains.

Broad-Based Hiring

It really has been broad-based, Faucher said, referring to the recent trend in hiring.

Macy's Inc. (NYSE: M), the second-biggest U.S. department store chain, plans to hire 4,000 full-time employees in 2012 for high-paying jobs, which matches the number of additions it made last year.

Caterpillar Inc. (NYSE: CAT), the world's largest maker of construction and mining equipment, announced in November it will shift production from Japan and open a new manufacturing facility in North America to produce small tractors and excavators. In February, the Peoria, Ill.-based company said the new facility will be built in Georgia and produce more than 4,200 jobs.

Top U.S. automakers -- General Motors Company (NYSE: GM), Ford Motor Company (NYSE: F) and Chrysler -- added more than 38,000 jobs in 2011 and have plans to hire 13,000 more this year. Another 20,000 workers could be hired if sales top the 15 million mark by 2015.

Decline May Not Be Sustainable

The unemployment rate has tumbled from 10 percent to 8.3 percent in a little over two years. But economists are not convinced that this rapid rate of decline is sustainable.

It's hard for me to say that this is a sustainable pace right now, Brown said. I think we are probably going to see a somewhat slower pace of job growth over the next two months.

Federal Reserve Chairman Ben Bernanke told Congress last week the decline in the unemployment rate was somewhat more rapid than would have been expected given that growth had been at or below trend at the same time. He added, however, that the job market is far from normal.

Bernanke said the U.S. economy has to show stronger growth to ensure that more Americans can find jobs.

Minutes of the Jan. 24-25 Federal Open Market Committee showed forecasts for unemployment rate at 8.2 to 8.5 percent at year's end -- i.e., election time.

Global Slowdown

Concerns also stemmed from external factors.

China, the world's second-largest economy, cut its 2012 economic growth target to an eight-year low of 7.5 percent from an 8 percent goal in place since 2005, a sign that Beijing is determined to scale back the reliance on external demand in favor of domestic consumption.

The Chinese economy expanded by 9.2 percent in 2011 from a year earlier after it grew 10.4 percent in 2010. The Asian powerhouse's GDP growth decelerated to 8.9 percent in the last three months of 2011.

Faucher, however, sees China's announcement and a shift in growth drivers as a positive factor for the U.S.

They've been coming in with growth above target and I would expect that to continue, he said.

Faucher said China's talk about changing from external-led growth, that is, exports, to internal-led growth will potentially benefit U.S. manufacturers. China could also be importing more high-value-added goods from the U.S. as they focus more on supporting consumer spending.

As for Europe, Faucher said the slight drag from Europe shouldn't be enough to derail the U.S. labor market recovery, unless a big financial crisis or a disorderly default in Greece spreads to Spain and Italy.

Then it will be a different story.

Workforce Participation Rate

The unemployment rate, the normal mechanism for understanding the percentage of workers who want to work but cannot find work, is telling us less and less each month.

When the recession officially started in December 2007, the labor participation rate was 66 percent and the unemployment rate was 5 percent.

By the time the recession officially ended in June 2009, the labor participation rate dropped to 65.7 percent. The unemployment rate at that time was 9.5 percent (the peak came four months later and registered at 10.1 percent).

Helped by an even lower labor participation rate of 63.7 percent in January, the unemployment number edged down to 8.3 percent.

Two major factors contributed to the decline in participation rate: aging Baby Boomers who have begun to retire and more people giving up the hope of finding a job.

Even though the labor market is heading in the right direction, there are still a lot of people out there who would like to be working but don't have a job now, Faucher said.

The number of people who have been out of work for 99 weeks or more still stands at record levels, and according to Brown, it is a very disturbing trend.

When the economy starts to turn around, those who have dropped out of the workforce may be encouraged by positive headlines to resume their job search. If that happens it could, at least temporarily, increase the unemployment rate.

However, Hoffman noted that an unemployment rate that is steady, or even moving up a bit, should not be regarded as a negative, as it indicates that people are more optimistic about the job market and many new or returning job-seekers are finding work.

A Far Cry from Pre-Recession Levels

Despite recent declines, the jobless rate in this cycle has been painfully persistent: The unemployment rate has stood above 8 percent for more than three years.

By contrast, the unemployment rate has averaged 5.8 percent since 1948. 

According to the jobs calculator available at the Atlanta Fed Web site, employers will have to maintain the current rate of creating roughly 200,000 jobs per month to get the unemployment rate down to 5.8 percent by November 2014.

Payroll employment is still down by about 6 million from its peak. So we have a long ways to make up and it's going to take us some time to do that, Faucher said.

The problem is that we are digging ourselves out of a very large hole.

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