The US economy is still slowly pressing forward, but it might as well be waist-deep in molasses.
It picked up only 113,000 additional workers in January, according to the Bureau of Labor Statistics monthly report, once again far below most economists’ estimates of 170,000 to 180,000 new jobs. The unemployment rate remained unchanged at 6.6 percent – a 0.6 percentage point drop since October.
“These job numbers show that the recovery remains slow but still moving in the right direction,” says Mark Williams, who teaches risk management at Boston University’s School of Management. “These numbers demonstrate it took years to create the financial recession, and it will take the same to get back to pre-crisis economic strength.”
For investors, who have been swimming in one of the most cash-happy markets in history – and one producing record gains and corporate profit margins over the past few years – the question now is whether the Federal Reserve Open Market Committee will reconsider its decision to tap back on its Wall Street stimulus spigot.
The Fed has told investors, who value predictability above all else, that it would keep interest rates at next to nothing for at least as long as the unemployment rate remains above 6.5 percent and inflation holds steady at about 2 percent. The US inflation rate was only 1.5 percent last year.
But as the economy started to improve and slowly add new jobs, the Fed has been easing back on the amount of cash it has been pouring into the markets, tapering its $85-billion-a-month purchase of longer-term Treasuries and mortgage-backed securities by $10 billion in each of the past two months.
“These lukewarm [jobs] numbers, combined with turbulence in the emerging markets, increase the likelihood that the Fed will slow it's tapering at next month’s policy meeting,” says Mr. Williams, a former Federal Reserve bank examiner. “[It] will cause the Fed to rethink automatically agreeing to $10 billion taper reduction.”
The social purpose of the Fed’s Wall Street stimulus, in the end, is to reduce unemployment and stimulate new jobs, an assumption that all this market cash will spill over into the broader economy and cause it to grow.
But in December, the economy added a paltry 75,000 new jobs – which the US Labor Department revised upwards by only 1,000 in this month’s jobs report, dampening some observers' hope that something was off in last month’s numbers. November’s more robust numbers, however, were revised to 274,000, up from its previously reported 241,000.
Still, despite the slow drop in unemployment, the overall labor-participation rate remains at its lowest levels in almost four decades. It improved slightly to 63 percent in January, up from a historic low of 62.8 percent in the past two months, but the percent of Americans working today remains at a level not seen since Jimmy Carter was president.
Indeed, the overall size of the labor force is virtually unchanged since October 2008, the last time unemployment stood at about 6.5 percent – even though the nation’s population has increased by nearly 12 million in the past five years.
Part of the reason for this is that baby boomers are beginning to retire, and will continue to do so en masse over the next decade. The working-age population, defined as workers between 15 and 64 years old, has increased by only about 6 million people since 2009.
Such numbers will put increasing amount of pressure on the labor force to produce for more and more people. And many more may be dropping out of the labor force altogether, giving up on finding a job – and thus not figuring in the slowly dropping unemployment figures.
“A low unemployment rate doesn't mean what it did in the past,” said Julia Coronado, chief economist, North America for BNP Paribas, to CNN. “It's not associated with an acceleration in hiring, and it's not associated with stronger wage growth. Ultimately, what the Fed wants to see is more money in consumers' pockets.”
Yet according the Friday’s Labor Department figures, the economy did begin to show some life in a few working-class job sectors, with construction companies hiring 48,000 new workers last month and manufacturers adding 21,000 new jobs. The health-care sector, however, which has remained relatively strong through the economic crisis, lost 400 jobs in January – the first loss since 2005.
The White House, meanwhile, remains concerned about the long-term unemployed after Friday’s report.
“While the overall unemployment rate continues to fall, it still remains unacceptably high, reflecting more than 3.6 million long-term unemployed,” wrote Jason Furman, chairman of President Obama’s Council of Economic Advisors, on the White House blog Friday morning after the job numbers were released.
Although policymakers at the central bank continue to “print” money for their Wall Street stimulus, the nation’s long-term unemployed (27 weeks or longer) have lost the ability to receive federal unemployment benefits beyond half a year. On Thursday, Senate Republicans for the third time blocked legislation to extend unemployment benefits to the 1.7 million people who saw them expire in December. Congress had previously approved benefit extensions 11 times since the onset of the economic crisis.
Though Mr. Obama and congressional Democrats continue to call for extended benefits for the long-term unemployed, last week the president announced commitments from at least 300 companies, including 80 of the nation’s largest, Mr. Furman wrote, to adhere to recruiting practices that would not put the unemployed at a disadvantage.
“These figures provide a stark reminder that despite the progress that has been made, the after-effects of the recession still linger and are creating hardship for many families,” Furman wrote.