When good job news can lead to higher unemployment

Washington state has seen steady job growth the past three months, but the unemployment rate just ticked up. Here's why that makes sense.

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Washington state has seen steady job growth the past three months, but the unemployment rate just ticked up. Here's why that makes sense.

In politics, it’s “the economy, stupid.”  But most of us just feel pretty stupid about the economy and simply want to know the answer to one question: So where does the economy stand, anyway?

Economics has been called the dismal science, perhaps for good reason. For March, the latest Washington state data on jobs and unemployment, released Wednesday (April 13) by the Department of Employment Security, is a bit confusing about the state of the economy here. About 1,100 jobs were added in the month, but the unemployment rate rose to 9.2 percent from 9.1 percent the month before. The rate in March a year ago was 9.9 percent.

The Seattle unemployment rate for March was 8.6 percent, down slightly from 8.7 percent the month before. A year ago, the city's rate was 9.2 percent. 

Job creation is the news of the year so far for the economy. From March 2010 to March 2011, Washington job gains totaled 33,100, with 83 percent — nearly 27,500 jobs — added in the first three months of this year. The importance of the Seattle-Bellevue area can be seen in the fact that the area accounted for 40 percent of the new jobs, according to Desiree Phair, labor economist for this area.

The economy seems to be in one of those stages where there are pluses and minuses. Retail trade was up in March, according to the Commerce Department, but in part because we spent more for gas.  The trade deficit narrowed in March as we imported less from China, but exports did not pick up much either, indicating the economy may be slowing. And so on.

In Washington state in March, the private sector added 2,400 jobs while government lost 1,300 jobs, a reflection of the continuing pressure on state and local government budgets. Construction continues to be the largest loser in the job equation, while professional and business services is the category that showing the largest gains.

Dave Wallace, chief economist for the Washington Employment Security Department, said the picture emerging is one of a more solid job recovery than in the recent past. He said the big-picture numbers (job growth and the unemployment rate) were not impressive, “but if I look at everything else I feel pretty good.” Wallace said the national numbers also are stronger.

Earlier this month, the Bureau of Labor Statistics said payroll employment increased by 216,000 in March nationally while the unemployment rate was unchanged at 8.8 percent. One of the growing questions in the recent surge in payroll growth is the quality of the jobs being added.

Washington state and the national economy are seeing additions in professional and business services. But this includes many part-time workers or workers from temporary job agencies, hardly high-paying jobs. Hourly average earnings have increased only 1.7 percent over the past 12 months, according to the BLS.

Still, Wallace said the state is seeing a slightly higher quality of jobs being added, especially those in manufacturing — particularly aerospace.

So with an increase in jobs, how come the unemployment rate went up? The rate is essentially the estimated number of people unemployed divided by the labor force. Wallace said that as the economy improves, more discouraged workers re-enter the work force, looking for work. It means the unemployment rate could actually increase in the months ahead unless job growth picks up even more substantially.

Wallace said the 1,100 jobs added in March are not enough to keep the economy growing. “It has to be above 1,100,” Wallace said, “and more along the lines of 8,000 jobs a month.”

The unemployment rate is not measured against all people who are working. Excluded are proprietors, self-employed, members of the armed services, workers in private households and agriculture.

While job growth is welcome, there remain a number of uncertainties out there for the economy. Gas prices are headed above $4 a gallon, and in some places have gotten there already. There is turmoil in the Middle East. A devastating earthquake and tsunami has hobbled Japan, the world’s third largest economy. Unemployment remains high. Last-minute political negotiations barely averted a shutdown of the federal government. Home foreclosures are still high.

Consumers generally are getting a bit apprehensive. The best measure of how consumers regard the economy comes from the Consumer Confidence Index, tracked by the Conference Board, a business and economic research group based in New York. The index declined 8.6 points in March to 63.4, a sharp drop from the level in February. An index around 90 is usually the sign of a healthy economy.

“The sharp decline in confidence was prompted by a sharp decline in expectations. Consumers’ inflation expectations rose significantly in March and their income expectations soured, a combination that will likely impact spending decisions,” said Lynn Franco, director of the Conference Board Consumer Research Center, in a statement.

Despite questions, forecasts for the overall economy continue to improve.  

The Paris-based Organization for Economic Cooperation and Development (OECD), which tracks the major industrialized economies, said earlier this month “economic growth in the G7 economies outside Japan could rise to an annual rate of about 3 percent in the first half of 2011.” The G7 economies are Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. 

But the OECD said that unemployment remains problematic, with the OECD-wide unemployment rate 2 percentage points higher than at the onset of the recession. Inflationary expectations have been creeping upwards, driven by rising commodity prices, but underlying inflation rates are still low, reflecting the large excess capacity that remains in labor and product markets. 

Washington still has ground to make up from the depths of the recession. Per capita income (think of it as fuel for the economy) declined by 2 percent in 2009, the most recent year available. That was the largest drop since 1970. Earned income — income from owning a business or holding a job — accounted for just 64 percent of total income in 2009, the lowest percentage on record, according to an Employment Security report on the economy at the end of 2010.

Another economic report released on Wednesday, the Federal Reserve’s Beige Book, reported moderate growth in most of the Fed’s 12 districts. Japan apparently is having more of an impact that many thought with a majority of the Fed’s districts reporting “actual or expected disruptions to sales and production” as a result of the tragedy in Japan. Surprisingly, the 12th District — the West Coast and Hawaii — did not report any disruptions.

The Beige Book is an anecdotal report on the economy so named because of the color of its cover.


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About the Authors & Contributors

Stephen H. Dunphy

Stephen H. Dunphy

Stephen H. Dunphy writes on business and economic issues for Crosscut. He was a business editor and columnist for a number of years at The Seattle Times.