Was the March Jobs Report a Superstar?


The first friday of the month has been considered the day of reckoning for the state of the economy. What indicator could get this sort of star treatment? Drum roll please ... The Jobs Report!

A quick recap of the March Jobs Report (find more details at my post here): there were 192,000 net jobs created in February, total unemployed is now 13.7 million (close to twice as many unemployed workers as there were when the recession began in December 2007), the unemployment rate fell .1% to 8.9%, and average hourly earnings went up for all employees by 1.7% over the last year.

So what does all of this mean? First, the increase in average hourly earnings may seem beneficial, but average hourly earnings adjusted for inflation increased by only .1% over the last year. Therefore, many will find that this increase is not enough to sustain consumption levels due to recent increases in food and energy prices.

In addition, there continue to be signs of life in the labor market; there are other measures, however, that indicate a stagnant labor market, such as the employment-to-population ratio, which remained unchanged. After the Keynesian experiment by Congress and the Federal Reserve’s (Fed) actions of throwing trillions of dollars at the problems we faced during the Great Recession, I would have hoped that we would find ourselves in a much better economic situation.

While I await a firm foundation for the U.S. economy, without bubbles creeping up in numerous asset markets from government intervention, I consider the lack of recovery in the labor market a perfect example of the wishful thinking of Keynesian economics. Specifically, the Economic Stimulus Act of 2008 and the American Reinvestment and Recovery Act in 2009 were both disasters that contributed to record-breaking federal budget deficits, increased savings by consumers, and reduced borrowing by state governments (see the testimony given by Stanford Economics professor John Taylor.) These actions did not achieve their objectives of stimulating the economy and creating jobs.  

On the other hand, the conventional monetary policy action of lowering the federal funds rate (the overnight lending rate of reserves between banks) by the Fed was highly effective in stimulating the economy. The purchase of longer term assets by the Fed, however, known as QE1 and QE2, did not and have not accomplished the Fed's goals according to the indicators we can use to evaluate these quantitative easing programs (for more information, see my post here).

What is a first step to stabilizing the economy? One place to start would be to raise the federal funds rate. In a recent blog post, Taylor made the case that this rate should be closer to 1% instead of 0-.25%, where it has been since December 2008. Currently, private firms are holding on to nearly $2 trillion in cash because they lack any incentive to put these funds to work.

Allowing instead for the markets to set interest rates efficiently without government distortion would lead to higher rates that would incentivize firms to invest now from the anticipation of higher borrowing costs in the future.

The "superstar" of the month has come and gone. While the mixed signals from the Jobs Report have led some to have withdrawals from the lack of euphoria that was anticipated, we are all left anxiously waiting next month’s report to see if improvements in the labor market will arise. For the welfare of the 13.7 million unemployed Americans and for our great nation, I certainly hope the story being told by future reports are “Up, Up, and Away!” 

Photo Credit: tinkerbrad