This weekly commentary discusses the March employment report and the state of the US labor market. It notes that while private sector job growth is occurring, the pace of around 230,000 new jobs per month is still short of the 300,000 needed each month to make up ground lost during the recession. Unemployment has fallen but this is partly due to people dropping out of the labor force. Wage growth remains sluggish and has not kept up with inflation. Overall the job growth is a positive sign but still far from sufficient to fully recover from the recession.

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Weekly Commentary by Dr. Scott Brown
Good, But It’s Not Enough
April 4 – April 8, 2011
Happy days are here again. The job market is now adding jobs at a pace stronger than population growth
– however, not by much. It’s been clear for some time that large-scale job losses are far behind us. The
problem in the labor market has been weakness in hiring. Small and medium-size firms have begun to
add jobs in recent months. Yet, with so many jobs lost in the downturn, there is a huge amount of ground
to make up.
The private sector shed a net 8.8 million jobs during the Great Recession (starting in December 2007 and
bottoming in February 2010). Over the last 13 months, private-sector payrolls have recovered by 1.8
million. However, we would normally add 1.0 to 1.2 million private-sector jobs just to keep pace with the
growth in the working-age population. Private-sector payrolls rose by 230,000 in March, but we would

2. need to see about 300,000 jobs per month for five or six years for the labor market to get back to where it
was before the recession.
The unemployment rate has fallen sharply in recent months, down a full percentage point from November
to March. However, that’s not particularly meaningful. The size of the labor force is nearly half a million
lower than it was in March 2010. As individuals exhaust their unemployment insurance benefits, they
have a tendency to give up looking for a job and are therefore not officially counted as “unemployed.” The
employment-population ratio is a better measure of capacity utilization in the labor market. One should
expect to see a greater emphasis on this figure from Federal Reserve officials and other economists in the
months ahead. This ratio has edged up recently, but is essentially the same as a year ago, still showing a
large about of excess slack in the labor market.

3. Average hourly earnings were flat in March, up just 1.7% from a year ago – not enough to keep pace with
inflation. That implies some restraint on spending growth for the typical worker, but there is enough job
growth to provide support for aggregate consumer spending growth. Still, personal income and spending
figures through February imply about a 1.5% annual rate of growth in inflation-adjusted consumer
spending in 1Q11 (significantly lower than the 4.0% pace in 4Q10). Higher gasoline prices are likely to be a
greater restraint in April – not enough to force the economy into a recession, but likely to dampen the
overall pace of economic growth.
State and local government shed more workers in March, continuing to restrain overall job growth.
Federal government employment has risen at a 1.0 annual rate since January 2009 (as a point of
comparison, it rose at a 1.2% annual rate from January 2001 to January 2009 – so much for the “massive”
expansion in the federal government).
The March Employment Report was good news, but it was not especially strong; far short of what we’d
like to see in terms of job growth at this point, but it’s a start. The key question will be the magnitude and
duration of the increase in oil prices. The impact of higher gasoline prices has yet to be fully felt.