Friday, March 5, 2010

The jobs market turns the corner

Jobs are now growing, according to the household survey of employment. Abstracting from the addition of some 180K government-sector jobs in the past two months, the household survey shows an impressive net gain of 500,000 jobs since the end of last year (the red line in the above chart).

Jobs are still falling, according to the widely-watched establishment survey. But for all intents and purposes, the establishment survey is now telling us that the decline in jobs has ended, and job gains are right around the corner.

So both of these surveys now point to an end to the decline of jobs, just 8 months after the end of the recession, and a return to net new jobs. That's not too surprising, given the swiftness and depth of the preceding decline in jobs. But despite having achieved this milestone, the unemployment rate is likely to linger at fairly lofty levels for quite some time since the labor force (those working or looking for work) is likely to grow for awhile by at least as much as the growth in jobs as an improving economy draws more workers back into the search for jobs. Last month, for example, the 120,000 job gains in the household survey were outpaced by a 340,000 gain in the workforce.

It's an encouraging picture overall, but nothing to get really excited about. Still, since the market has been fearful of a double-dip recession since mid-January, it's a positive development that exceeds market expectations, and thus warrants continued optimism. The economy is still on the road to recovery. As the next chart shows, the yield on 3-mo. T-bills continues to rise as the market gradually loses its extreme desire for safety. 10-year Treasury yields are up about 10 bps today, as they also react to the better-than-expected jobs news. Expect higher yields across the Treasury curve in the weeks and months ahead. The market has been thinking that the Fed would be on hold for most of this year, but with news like this it seems clear that the Fed is going to have to raise rates sooner than expected, and that would be very welcome news for those of us who worry that the Fed could make a big inflation mistake if it waits too long to tighten.

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