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Is the labor market floundering?

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Is the labor market floundering?

April 15, 2013 - 05:20

The latest monthly jobs report was undoubtedly disappointing, showing job growth in March of only 88,000 after much higher gains in the previous months. As would be expected, questions immediately arose about the true health of the labor market, and if the recovery was faltering. Although this jobs report was significantly weaker than expected, we continue to believe that that the jobs market, while still not entirely healthy, is healing and should continue to improve throughout the year.

There are a number of reasons for our optimism, the first of which is that we have seen this pattern before. For the past two years, since employers started to consistently add jobs in late 2010, job growth has been strong in the last few months of each year and in the first months of the next year, only to be followed by weaker growth in the second and third quarters of each year. We believe that this, at least in part, is due to problems with the government's seasonal adjustment model that are related to the timing of the downturn in 2008. It therefore makes a bit more sense to look not at individual monthly numbers, but at some longer-term averages to gauge what is really happening. And based on that, we are continuing at approximately the same rate that we have seen since the beginning of 2011. The average number of jobs added over the first three months of the year comes out to 168,000, compared to an average of 183,000 for all of 2012 and 175,000 for 2011. Moreover, during recoveries, revisions to the monthly numbers are frequent, and are in general to the upside. We expect that this will happen with last month's numbers, just as it did with the previous two month's data.

Other indicators also support the view that the labor market is not deteriorating. Weekly jobless claims dropped below 350,000 again, the level often seen as necessary for growth. More importantly, however, is the Job Openings and Labor Turnover Survey, a good forward-looking indicator of what both employers and employees are doing. On the employer side, the number of posted job openings increased dramatically in February, the last available data from this survey, jumping by almost 9% month-over-month. This is the highest level of job postings since May 2008, when they were falling dramatically. While this has not yet translated to increased hiring, there is historically a very strong correlation between the two, and we would expect that hiring will pick up. At the same time, the sentiment of job seekers is continuing to improve. When those looking for jobs are more confident about the job market and their own ability to find a job, they are more likely to voluntarily leave a job. And this number of voluntary separations -- quits -- has been steadily improving and has now risen to the highest level since the end of 2008.

 

David Katsnelson, Director, Macroeconomics, author of the Monthly Economic Commentary, works out of RISI's Bedford, Massachusetts, office and can be reached at 781-734-8982 or by email at dkatsnelson@risi.com.

This is an excerpt from a full story that is available in RISI's Pulp & Paper News Service.


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