The economy maintained its recent pace of job creation in February, adding 236,000 new jobs during the month. The jobless rate dropped to 7.7%, its lowest point since December 2008. Over the past four months, nonfarm payrolls have risen by an average of 205,000 per month, which is a solid result.
The private sector continues to show surprising resilience, even as the public sector succumbs to austerity. The fact that the pace of job creation is this solid even with confidence and hiring practices among small businesses still limited is noteworthy.
Consumer spending has held up reasonably well in recent months, as households have sharply trimmed their savings to support spending.
The full impact of recent tax hikes and sequester-driven spending cuts have not yet been fully absorbed, and will gradually become more apparent in the months ahead. There’s no question that this fiscal drag will restrain income growth. The wild card is how the consumer sector will respond, and how that impact is distributed across household spending cuts, reduced savings, and increased borrowing.
Today’s report is broadly positive, building on other recent data that has exceeded expectations. Nonetheless, it’s still important to look at the broad swathe of economic data and not excessively focus on any single report. Moreover, it’s critical to differentiate between results that are “better than expected” and concluding that the broad economy is performing well. Trend growth remains lackluster, and the all-important consumer sector is still dealing with limited income growth, higher tax burdens, and a recent rise in energy prices. The jobs market appears to still be advancing, which is unquestionably positive, but we believe that it’s still too early to conclude that the U.S. economy is out of the woods.
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