Employers Ignore Economic Clouds --- Unemployment Falls to 4-Year Low, but Headwinds Persist
By Brenda Cronin
9 March 2013
The Wall Street Journal
(Copyright (c) 2013, Dow Jones & Company, Inc.)
Employers stepped on the accelerator last month, hiring briskly enough to bolster the recovery but likely not enough to prompt the Federal Reserve to turn off its easy-money spigot.
The U.S. added 236,000 jobs in February, notching gains in almost every corner of the private sector. February's gains were well above the 195,000-job-a-month average of the previous three months and pushed the jobless rate to a four-year-low of 7.7%.
Surging stock prices, mending housing and labor markets and a booming energy sector are among the tailwinds propelling the economy. U.S. stock markets rose following the report, with the Dow Jones Industrial Average ending at its fourth consecutive record close, finishing the week up 2.2% at 14397.07.
"The overall 236,000 number is nice, but the breadth of jobs growth across industries tells me that the recovery is broadening and likely gaining momentum," said Mark Vitner, senior economist at Wells Fargo Securities LLC. "The mix of jobs is also changing. We're creating higher-paying ones."
Although February showed promising momentum, the Fed isn't expected to put the brakes on its easy-money programs until it sees further, sustained gains.
Recent benchmarks, including measures of gross domestic product and manufacturing, reflect a recovery that is moving forward but at risk of losing pace as its main engine -- consumer spending -- is strained by higher taxes and gas prices. The recession in Europe and weakness in other U.S. export markets also pose threats, as do possible shocks from Washington's budget wrangling.
Despite the headwinds, a growing number of businesses are pressing ahead with expansion.
Jay Valanju, chief executive of Fisoc Inc., says his three-year-old firm has been "deluged with resumes" and is "hiring aggressively" across the nation. Fisoc manages software for banks and other financial institutions that allows customers to gain "loyalty" points -- which can be converted into items such as gift cards or donations to charities -- by using their debit or credit cards at local retailers. The Austin, Texas, firm does business in more than half a dozen states.
Mr. Valanju says his firm, which has 32 full-time employees, is looking to add software developers as well as sales and marketing executives.
"For a couple of years, there was a pullback" among financial institutions, he said. "But banks and credit unions are much more willing to spend money now."
The unemployment rate fell from January's 7.9% to 7.7%, its lowest level since December 2008, but not entirely for positive reasons.
The February decline was due not only to job creation but also to 130,000 individuals leaving the workforce.
While some may have retired, returned to school or stopped working to take care of children, others are ceasing their job hunts because they aren't sanguine about the prospects. The number of "discouraged workers," or those who have given up looking for work because they believe no jobs are available for them, increased by 80,000 in February.
February's gains were powered by the construction sector, which added 48,000 jobs, and health care, which added 32,000. Retailers added 24,000 positions, a vote of confidence that consumers will weather both the payroll-tax increase and higher gas prices, and continue spending into the spring.
Government, particularly at the state and local levels, continued to contract, shedding 10,000 positions in February.
The snapshot of the nation's jobs situation doesn't take into account the sweeping budget cuts known as the sequester, which went into effect a week ago and has taken an outsize chunk from military spending.
The sequester already is taking a toll on Valkyrie Enterprises, a Virginia Beach, Va., contractor that works almost exclusively for the U.S. Navy, providing military-training development and systems engineering. "I've been in this industry for 33 years, and I've never seen anything quite this draconian," said Gary Lisota, Valkyrie's president and chief executive.
Mr. Lisota's 202-employee company has postponed software upgrades and other spending -- and put most hiring on ice. "I expected to hire 80 to 100 people in 2013 and now I'm thinking -- if I'm lucky -- it might be more in the 10 to 20 range," he said.
The Bipartisan Policy Center, a Washington think tank, estimates the sequester could shave 0.5% from GDP growth in 2013 and cost the economy more than one million jobs over this year and next.
The full effects of ongoing budget fights could take a serious toll in the second quarter and possibly the third, said Ian Shepherdson, chief economist of Pantheon Macroeconomic Advisers.
"I don't think the economy is going to roll over," he said, "but I don't think there's much room for it to take a big hit and ignore it . . . . If you're going to do some crazy fiscal tightening, it's better to do so on an economy with some strength than one that is very weak."
The transportation and warehousing sector also cut jobs last month, which a number of economists attributed to weather.
Seasonal factors may have damped the entire February jobs tally, setting the stage for a bump up in March. The two surveys -- of businesses and households -- that yield the number of jobs gained or lost and the unemployment rate, are conducted around the 12th of the month. This year, the surveys came on the heels of a blizzard in the Northeast, likely affecting the number of individuals recorded as working or seeking work.
The ranks of temporary workers, often seen as a hiring bellwether, surged by 16,000 after declining by 3,000 in January. Demand is up at staffing firmManpowerGroup, although the "conversion rate" of temporary workers to full-time ones is flat this year from last, said Chief Executive Jeffrey A. Joerres.
That reflects companies' increased productivity, Mr. Joerres said, with firms getting "very good at making trade-offs" and ensuring they have enough workers -- but not too many -- to handle the essentials.
Companies hiring temporary workers are taking the economic headwinds in stride, Mr. Joerres said. Despite a flurry of domestic and international risks, businesses "are getting a bit numb to the shocks that are happening to the system," he said. "But they're remaining on high alert."
