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National Restaurant Association - Economist’s Notebook: So is the economy really recovering, or what?

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Economist’s Notebook: So is the economy really recovering, or what?

In his latest commentary, the National Restaurant Association's Chief Economist Bruce Grindy breaks down the latest jobs report.  Although the national unemployment rate fell sharply for the second consecutive month to 9.0 percent in January, employers only added 36,000 jobs.  What’s behind these divergent numbers? 

For the second consecutive month, the job reports left many economists scratching their heads.  According to the Bureau of Labor Statistics (BLS), the national unemployment rate fell 0.4 percent for the second consecutive month, landing at 9.0 percent in January.  This represented the largest two-month drop in the jobless rate since 1958, when it fell from 7.1 percent to 6.2 percent in a two-month period. 
Normally this would be great news, and a sign that the economic recovery is really picking up steam.  A sharp decline in the unemployment rate would typically be accompanied by equally impressive gains in the number of jobs.  However, employers reported adding only 36,000 jobs in January and 121,000 jobs in December, certainly not enough to expect such a dramatic decline in the unemployment rate.  

Part of the softness in the January jobs report can be attributed to the weather.  Many sectors that are susceptible to the impact of inclement weather reported job losses in January, including construction (-32,000), transportation (-37,000) and eating and drinking places (-4,000).

On the positive side, the manufacturing sector added 49,000 jobs in January, the third consecutive monthly gain for a total of 78,000 jobs.  In addition, retailers added 28,000 jobs in January, which suggests that the positive holiday season carried over into the new year.

As for why the unemployment rate declined so significantly, BLS reported a gain in the number of individuals saying they have jobs, as well as a decline in the number of people saying they are looking for work.  This suggests that many of the new jobs are either in self-employed areas or at start-up businesses that are not yet being counted in the BLS establishment survey. 

unemployment rate.gifLooking forward, job growth is expected to pick up throughout the course of the year, as the positive impact of the fiscal stimulus takes hold and consumers become more confident in the economy.  Barring any further significant weather issues this month, the February jobs report will likely show solid improvements on the employer side.

Chart depicts U.S. unemployment rate. Source: Bureau of Labor Statistics; figures are seasonally-adjusted

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