Analysis: March 2011 BLS Jobs Report

The US unemployment rate held steady at 8.3%, marking the sixth consecutive monthly decline; the broader underutilization rate decreased to 14.9% (from 15.1%).

• A net +227k jobs were created in February, well above consensus estimates of +210k; December and January jobs figures were also revised upwards (+60k in total); the three month moving average now sits at +245k.
• The total number of unemployed (12.8M) and long-term unemployed - those out of work for 6+ months (5.4M or 42.6%), remained flat.
• The labor participation rate increased to 63.9% (from 63.7%), highlighting the fact that more discouraged workers are re-entering the workforce. Note: As more discouraged workers return from the sidelines, the unemployment rate may increase or hold steady (like in February) if job creation can't offset the numbers.

Lots to be excited about...

• Job growth remained widespread: professional and business services (+82k; +45k in temp help services - a leading indicator of full time hiring), healthcare (+61k), leisure and hospitality (+44k) and mining (+7k) all experienced sizable gains.
• Construction (-13k), retail (-7k; -1.6k within clothing stores) and government (-6k; however, the rate of job loss within the public sector continues to decrease) all pared payrolls.
• Quite interestingly, increases in manufacturing jobs (+31k) highlight improving consumer demand. Subsequently, this is generating positive benefits further down the supply chain: transportation and warehousing (+10.6k) and wholesale trade (+8.4k).

What’s in store? Key watch items…
On the bearish side:

• Economic engines running out of gas? China and India's economies, two important global catalysts for growth, are slowing down with both governments expecting lower growth in 2012 (7.5% and 6.9% respectively…vs. 9+% growth in previous years). Their slowdowns are taking a toll (e.g., during Q411, EU businesses suffered their first drop in exports in 2.5 years leading to a -0.3% decrease in Q4 GDP and a humbling 0.7% GDP increase in 2011).
• Cheap money. The Fed's efforts to lift the US economy from the ashes (via its loose monetary policy) has contributed to a weaker dollar. While a weaker dollar is good for exports and GDP, it raises the price of imports (e.g., gasoline). While the Fed maintains its position of holding interests near zero until 2014, one has to be concerned about the longer-term impact on consumer demand.

On the bullish side:

• More money in US consumers' pockets. The cost of labor for non-farm businesses rose to 2.8% in Q411, higher than the 1.2% expected increase. Higher labor costs underscore the improving job market which is allowing workers to command better pay.
• EU feeling better. According to the European Commission, businesses and consumers in the Euro zone are feeling more optimistic about their economic prospects as evident by a second consecutive monthly increase in the EU's Economic Sentiment Indicator to 94.4 (vs. 93.4 in January). While this is still well off the long-term ESI average of 100, it was the highest reading since October 2011.

Penny Wise, Pound Foolish?

A couple months ago, I wrote about the emerging trend of U.S. companies insourcing production jobs back to the U.S. While this serves as great news for our blue-collar workforce, a rather different and alarming trend is befalling our skilled working class.

Based on a recent study by the National Science Board, in the six years through 2009 about 85% of growth in research and development workers employed by U.S.-based multinational companies has been abroad. While this isn’t all bad news. After all, U.S. companies aren’t necessarily closing labs or shedding jobs at home. They’re establishing strongholds within engineering and scientific talent hotbeds (Note: ~56% of the world’s engineering students are foreigners and 57% of doctoral degrees in engineering were awarded to foreigners, mostly from East Asia or India). One has to consider the long-term impact of the U.S.’ austerity efforts on our future supply of skilled talent.

Don’t get me wrong. I readily admit that the U.S. has for some time now spent way beyond its means (how long has it been since Congress delivered a balanced budget?) and significant steps must be taken to get our fiscal house in order. However, we must increasingly question the shortsightedness of continually cutting budgets for low-hanging targets like education and the arts (Note: Based on BLS figures, hundreds of thousands of teaching jobs have been cut over the last several years). Continued negligence by our elected officials may only exacerbate this alarming trend and further deplete our talent.

So while banging the austerity drum makes for good political theater, shouldn’t we be asking ourselves how much is too much? After all, I’d hate to mortgage our future for the short-term gains of the present (not to mention some congressional seats).