Expect a disappointing jobs report for February thanks to higher taxes and sequestration fears that put companies’ hiring plans on hold last month.
Economists expect nonfarm payrolls to show a gain of 160,000 jobs in February, with the unemployment rate holding steady at 7.9%, when the Labor Department releases the February jobs report tomorrow (Friday) at 8:30 a.m.
Employment growth has averaged 177,000 per month over the last six months, and February is expected to fall short.
One reason is the 2% payroll tax cut that ended with 2012, leaving workers with less disposable income. Also, top income earners were slapped with a higher tax rate.
The full tax impact wasn’t felt in January, but retailers and restaurants are beginning to feel the pain.
In addition, budget cuts that kicked in March 1 most likely kept businesses from hiring.
“There are more headwinds and fewer tailwinds than usual this first quarter compared to the last couple of first quarters,” Sam Wardell, Investment Strategist at Pioneer Investments told the International Business Times.
Hiring in the government sector is likely to show sequester-job freezes. A loss of 7,000 government jobs is expected. That comes on the heels of the 9,000 lost in January.
“We expect that construction and service sector activity will be the primary driving forces behind payroll growth, with modest gains in the manufacturing sector roughly offsetting declines in government employment,” Michael Gapen, senior economist at Barclays Capital wrote in a note to clients.
But, the country’s weak 0.1% growth in the final quarter of last year is a reflection of the stagnant economic and employment recovery. The insufficient read is nowhere near the kind of growth needed to propel unemployment to healthy level.
Jobs Report Gives Fed the Greenlight
A low job gain will suggest the Federal Reserve will keep its foot on the pedal and continue its aggressive bond buying program.
A strong report could end the Dow’s record run if markets think the Federal Open Market Committee (FOMC) will start to rein in its easy monetary policies sooner than expected. Red flags were raised when minutes from the latest FOMC meeting revealed some central bank members are growing increasingly anxious about its monetary measures.
Fed Chief Ben Bernanke has pledged to keep buying some $85 billion in bonds monthly until the job market shows significant and sustainable progress. That could take a while; a normal level of 6% isn’t projected to be hit until 2016.
What the Jobs Report Doesn’t Show
The unemployment rate hit 10% in October 2009, climbing from a 4.9% low in 2008.
The broadest measure of unemployment, the U-6 number, is currently at 14.5%. That number includes unemployed, the more than eight million people who are employed part-time but seek full-time status, and the 10 million discouraged individuals who have simply given up, according to The Journal.
The waning labor force participation rate has dropped to the lowest level since 1981. The rate reflects those who have stopped looking for work. Without these dropouts, the real unemployment rate would be nearly 9.8%, not the present 7.9%.
Just as important as the number of people out of work is the length of time they have been out. About 40% have been without a job for more than six months, according to Bureau of Labor Statistics. Of this total, 4 million, or 29%, have been without a job for more than a year.
The longer people are jobless, the more difficult it is for them to return to the workforce. When they do find a job, typically it’s a lower paying position. That is not simply problematic for households; it also weighs on the overall economy. People earning less spend less.
Since U.S. President Barack Obama has been in office, the unemployment rate has hovered at an elevated 8% after peaking at 10% in late 2009.
And joblessness remains a theme for his second term: During the president’s February 2013 State of the Union address, he said the word “jobs” 45 times.
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