Unemployment rate drops 0.1 percent, showing 'positive momentum' in job market

Call it welcome news for the economy: in March the nation added 216,000 new jobs.

At the same time, the unemployment rate slipped by 0.1 percentage points to 8.8 percent.

According to the Bureau of Labor Statistics, the job market gains took place in the service sector, such as restaurants and hotels, health care, temp services, as well as mining and manufacturing. The only lagging areas are construction and state and local governments.

The improved jobs picture took place even though the price of oil and gasoline rose through the month and consumers were beset by the uncertainty of news about the earthquake disaster in Japan.

Instead, the economy seems to be benefiting from record exports, better-than-expected retail sales and healthy spending on new plant and equipment.

This marks the second consecutive month of healthy job gains, prompting some economists to predict the nation was now entering a job creation phase that will carry economic growth through the year.

“We are not having a double-dip recession,” says John Silvia, chief economist at Wells Fargo Securities in Charlotte, N.C.

Good news, but how good?

During the past four months, the economy has averaged 158,000 new jobs a month, notes economist Sung Won Sohn, a professor at California State University, Channel Islands. Some of this is related to an improvement in the auto sector, he notes. “Demand is rising for small business supplying to the auto sector,” he says. “They have been hiring more people.”

The White House hailed the better jobs picture. In a statement, Austan Goolsbee, the chairman of the Council of Economic Advisers, said the last two months of private job gains have been the strongest in five years.

“We are seeing signs that the initiatives put in place by this Administration – such as the payroll tax cut and business incentives for investment – are creating the conditions for sustained growth and job creation.”

However, Republicans were less enthusiastic. In a statement, Rep. Kevin Brady of Texas, the top Republican on the Joint Economic Committee, noted the nation had 7.2 million jobs less than before the recession began. “That’s not acceptable by any standard,” he said.

Deeper problems remain

Despite the improvement in the March jobs numbers, there are still some significant issues in the labor market, says Mr. Silvia.

“The real issue is that we have a structural unemployment problem,” says Silvia. “We have a lot of people with the wrong skills, or they are living in the wrong spot, such as Michigan or upstate New York, or they are trapped in houses they can’t sell without taking a big loss.”

According to the March numbers, the number of long-term unemployed, defined as those out of work for 27 weeks or more, was 6.1 million in March. Their share of the unemployed rose from 43.9 percent to 45.5 percent.

At the same time, the number of people who are working part-time because they can’t find full-time work remained at 8.4 million, the same as the prior month.

“Taken together with workers that are marginally attached to the labor force – that is those who are out of work, available to work and have sought employment in the past year – the real unemployment rate stands at 15.7 percent, maintains the National Employment Law Project (NELP), an advocacy group in Washington.

Role of high gas prices

Over the short term, economists are also warily watching the affect of the rising price of gasoline. According to AAA, the national motorists' club, the price of gasoline is now $3.62 a gallon, up 24 cents a gallon in the last month.

“It should hurt us sooner or later, but so far it has not had a significant affect,” says Mr. Sohn. “When you look at the highways, there is not a significant thinning out of cars on the road yet.”

However, the gas price makes it harder to hire lower-wage workers, says Roy Krause, president of SFN Group, a large supplier of temp services based in Ft. Lauderdale, Fla. “If they are making $8.50 an hour, how far will they drive with gasoline at $4 a gallon?” he asks. “It’s having an effect on a lot of companies that moved to smaller cities so they could pay a lower wage.”

Another area Mr. Krause is worried about is the auto sector’s ability to operate with many suppliers in Japan still closed because of the earthquake. “It’s a problem that could be with us for a couple of weeks or months, but not for an extended period of time,” he says. “But, there is some slowing in those companies that make components for the automobile industry."

Despite those qualms, he says the jobs market seems to have a “positive momentum.”

“We don’t see a huge ramping up or expansion,” he says. “And we could have some months when we will be disappointed.”