Job Growth to Help Drive Economic Renewal

Jobs are picking up steam and this will help add some drive to the economic recovery. In February, the key non-farm payrolls generated 192,000 new jobs, above the consensus estimate of 185,000 and the upward revised 63,000 in January.

Better yet, the unemployment rate fell to 8.9%, below the estimate of 9.1% and 9.0% in January. I feel that the break below 9.0% is a key milestone and perhaps a turning point. The improvement was that much more important given that the unemployment rate was 9.8% in November 2010.

I have been saying how we need jobs to really add to the economic recovery and what we are seeing is a good start. And if the strong job creation continues, I sense that the economy will expand at a higher growth rate in 2011 and 2012.

In the private sector, the ADP Employment Change was better than expected, with 217,000 new private jobs in February, well above the estimate of 165,000 and the revised 189,000 in January.

And, on a weekly basis, the first-time initial claims reading for the week to February 26 was impressive at 368,000, well below the estimate of 400,000. Readings below 400,000 are positive.

Jobs will add to the economic recovery. My economic analysis is based on what is referred to as the “multiplier effect,” where a dollar spent results in more spending. For instance, you spend a dollar at the store. That dollar is used to pay workers, who in turn spend. This cycle continues and is a major driver of total spending in the economy.

For example, a worker buys a bike at the store. The salesperson makes a wage and commission and in turn buys spends money, say on a lunch at a restaurant. The salesperson tips the waitress at the restaurant, who in turn uses her tip to buy something. As you can see, the initial spending causes a domino effect in spending, which helps to drive up GDP.

Add in the new jobs and the spending will rise significantly. Factor in the multiplier effect and the new jobs generate additional growth. This can only be positive and this is what the government wants to see. Plus, more jobs mean less spending on unemployment benefits and, more importantly, increased taxes from workers returning to the workforce. This will help with the mounting deficit and debt.

We just need to see jobs continue to rise each month. The problem is that there are presently about 15.1 million Americans unemployed and looking for jobs while struggling to make ends meet. There are only about 2.9 million available jobs. Do the math. That is five unemployed workers competing for one job.

It will not be easy, but I’m encouraged by the jobs report. Let’s hope the good news continues.

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