Jobs Market Convalescence Could Take a Long Time

The U.S. jobs market may finally be on the verge of an actual recovery, but expect it to come back with a whimper rather than a bang.

The Labor Department today said the number of people who filed for unemployment insurance last week was just 368,000. That's the lowest number of weekly jobless claims reported by the government since May 2008, before the full force of the financial crisis slammed into the American economy, and it marks a drop of 20,000 from the previous week's total.

An unemployed man looks over job listings on a board in Brooklyn on Thursday, March 3, 2011.

Chris Hondros, Getty Images

An unemployed man looks over job listings on a board at a New York State Department of Labor Employment Services office Thursday in the Brooklyn borough of New York City. The number of Americans filing first-time claims for unemployment benefits fell last week to a level not seen since May 2008.

What's striking about today's numbers is that for months, the Labor Department has been reporting lower jobless claims totals most weeks, only to revise them higher a week later. That left the impression the situation was improving when the number of jobless claims was staying well north of the 400,000 level, which signifies a pretty unhealthy hiring environment.

Today, though, the government revised last week's figures lower, and the less volatile four-week moving average fell to 388,500 from 401,250.

Ahead of Friday's closely watched monthly report on employment and payrolls, today's jobless claim total is one of the brightest signs for employment in the past year.

But those numbers still have to get a lot lower to signal that the economy is generating more work than it's losing -- especially with so many of the more 8.75 million Americans who lost jobs in the recession still out of work.

As Federal Reserve Chairman Ben Bernanke noted in testimony before Congress this week, the employment gains of 2010 were "barely sufficient to accommodate the inflow of recent graduates and other entrants to the labor force."

And while there are several key economic telltales suggesting the pace of job creation is picking up, there are others painting a more ambiguous picture.

Here are some of the more important pieces of the puzzle:

Both manufacturers and the service industries -- such as retailers and restaurateurs -- appear to be adding jobs. Every month the Institute for Supply Management surveys purchasing managers at manufacturers and big players in the service sector across the country, and both surveys now show growing employment.
Banking and business contacts of the 12 regional Federal Reserve banks report a strengthening demand for workers. From health care assistants in the Boston and Cleveland districts to information technology staff in the Dallas area and staffing agencies nearly everywhere, an appetite for hiring has expanded.
Consumer spending is rising, which could make corporate America more confident about hiring.

But...

The turmoil in the Middle East, especially the spike in oil prices, has increased uncertainty about the economy's direction, breeding more caution.
The pace of mass layoffs -- when at least 50 workers are cut by a single employer -- hasn't slowed. Employers took 1,534 mass layoff actions in January, an increase from December, which left 149,799 workers without jobs.
The productivity of U.S. industry has been improving, helping companies do more with fewer workers. The government said today that productivity grew by 2.6 percent in the fourth quarter of last year, as output rose by 4 percent at the same time that the number of hours worked increased by just 1.4 percent.
Industry still has a lot of slack capacity, meaning companies have room to increase production without new hiring or building new plants. The Fed's measure of how much U.S. industry is producing as a share of its maximum sustainable output was just 76.1 percent in January, 4.4 percentage points lower than its average from 1972 to 2010.
A monthly Gallup reading of underemployment -- which includes both unemployment and the percentage of Americans who want to work full time but can find only part-time work -- grew last month to nearly 20 percent.

As Bernanke noted, there are "some grounds for optimism about the job market over the next few quarters."

But even so, he added, "if the rate of economic growth remains moderate, as projected, it could be several years before the unemployment rate has returned to a more normal level."