At 9.7%, the unemployment rate dropped unexpectedly from 10% in December and down a half percent from its cyclical peak in October. For the month, payrolls declined 20,000.
The decline in the unemployment rate was not a result of unexpected strength in the number of jobs created, but more individuals leaving the workforce, which should not be misinterpreted as a positive surprise. Consequently, we anticipate that the unemployment rate could easily test the 10% threshold again when job creation resumes and discouraged workers again begin to seek employment.
A number of indicators continue to point toward positive – but choppy – economic growth. The strong GDP number from last week was helped significantly by inventory building, reinforcing other indications that manufacturing activity continues to gather steam.
Employers were able to keep hiring constrained through the end of the year through productivity gains and increased utilization of their current workforce. Should the inventory re-stocking cycle continue and be further supported by a pickup in consumer demand, it would appear employers will need to ramp up their hiring efforts in the months ahead.
The U.S. Consumer remains the most important piece of the growth puzzle, but the outlook for improved spending in the near term remains questionable. We anticipate that constraints on the availability of credit and a continuing emphasis on personal savings will both weigh on spending for the foreseeable future.
We anticipate that the employment picture is likely to improve in the months ahead as hiring picks up, but it’s going to take an awfully long time for the U.S. economy to recover the jobs lost in this recession. The loss of eight million jobs is a deep hole; it’s difficult to envision the type of growth that is going to support the kind of job creation needed to take us back toward full employment for several years.