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Unemployment Falls to 8.9% as “Conservative” Recovery Continues

Daniel Gross
Fin - Daily Ticker - US

The Bureau of Labor Statistics said 192,000 payroll jobs were created in February and the unemployment rate slipped to 8.9 percent, the first time it has dipped below 9.0 percent since April 2009.

Four quick takeaways from the report, released Friday morning:

Public/Private Partnership? What might be called a "conservative jobs recovery" continues. Government actions and spending may have helped stop the panic in 2009. But this expansion has been led largely by the private sector. Every month, companies add jobs while the public sector cuts them. Governments at all levels cut 30,000 jobs last month -- 12,000 at the state level and 18,000 at the city level. As BLS notes, "local government has lost 377,000 jobs since its peak in September 2008."

As seen by the drama unfolding in state capitals around the country, this is likely to be a continuing trend. Employment growth is now occurring in spite of government spending, not because of it.

Inflation? What inflation? In this recovery, companies have done a fantastic job containing costs, even as prices of key commodities (gas, grains, metals) have risen. They've done so in part by clamping down on labor costs. In the fourth quarter, as BLS reported earlier this week, productivity grew at an impressive 2.6 percent annual rate and labor unit costs fell 0.6 percent. Translation: Employers are getting more out of their workers for less.

Despite the gains in jobs in recent months and the decline in the unemployment rate, there's still a lot of slack in the labor market: 13.7 million Americans remain unemployed and the so-called real unemployment rate is still a hefty 15.9%. Add in the continuing decline of labor unions, and workers across the board are having a tough time getting higher wages and benefits from employers. And so in February, average hourly earnings rose by a single penny, to $22.87, from $22.86 in January. In the past year, average hourly earnings are up just 1.7 percent.

Making stuff It may go noticed on the coasts, but the U.S. economy still produces lots of stuff. The Federal Reserve's data show that industrial production rose 5.2 percent in the past year, and that more of America's industrial capacity is being put to use. The nation's largest manufacturing sector - autos - is in far better shape than it was a year ago.

So it's not surprising that the long-suffering manufacturing sector added 33,000 jobs in February, with the durable goods sector leading the way. Since December 2009, manufacturing jobs have increased by 195,000.

The Rear-Window Recovery Official government data on the economy is always backward-looking. But the monthly jobs report is particularly backward-looking. The monthly number is reported, then revised in each of the two following months. As is frequently the case when the economy is gaining momentum, the trend has been for prior months' totals to be revised upwards.

Originally reported in January as 103,000, the December payroll number was revised up to 121,000 in February. Today, BLS concluded that 152,000 jobs were created last December. The original January number, a disappointing 36,000, was revised up to 63,000, and is likely to be revised up again next month.

In other words, BLS discovered that an extra 45,000 jobs were created in December and January. Should that trend continue, this decent jobs report will look significantly better when BLS provides the next snapshot of the labor market in early April.

Daniel Gross is economics editor at Yahoo! Finance

Follow him on Twitter: @grossdm. Email him at grossdaniel11@yahoo