Posted on May 4, 2013
Some hopeful hiring signs, except for ObamaCare's incentives to employ part-timers.
It's a rare day that a 7.5% unemployment rate and 11.7 million Americans out of work are reasons to strike up the band. But with Friday's news of 165,000 payroll jobs added in April (176,000 in the private economy), stocks went on a tear and the Dow crossed 15000 for the first time.
The best news is the resilience in the private economy. Friday's upward revision of 114,000 in jobs in February and March means that net new hiring has averaged 212,000 over the last three months. That's hardly spectacular but it is enough to gradually bring down the jobless rate.
Long-term unemployment fell by a hopeful 258,000, and the biggest job gains were in professional and business services (up 73,000). Construction employment fell by 6,000, which means the April jobs increase wasn't built on the recovery in housing but was more broadly based.
Another good sign is that private hiring continues to make up for flat employment in government. Public payrolls fell marginally by 11,000 in April, which has the Keynesians on Wall Street and in Washington moaning about "austerity." But after the artificial hiring of the Obama stimulus, government needed austerity and should get a lot more. Private hiring can build on itself as the economy grows, while government hiring is unsustainable given current debt and tax burdens.
One big negative in the April report is the increase in part-time employment. There was a 278,000 increase in those working part-time "for economic reasons," meaning they would work full-time if they could find such a job. The average hours worked in a week also fell, to 34.4 from 34.6, and the average weekly earnings fell to $821.13 from $824.52.
The broadest measure of unemployment, which includes involuntary part-time employment and discouraged workers who drop out of the labor force, rose to 21.9 million and an abysmal rate of 13.9%.
All of this suggests that ObamaCare is beginning to skew hiring patterns. Employers will soon have to offer health-insurance or pay a penalty for full-time workers, which the health law defines as anyone who works at least 30 hours a week. Many small businesses appear to be limiting their employees to fewer than 30 hours, perhaps with job-sharing or even by splitting employees with other employers.
This is a hardship for workers who want to earn more and a needless complication for businesses that need the labor. If Congress won't repeal ObamaCare, it could at least help these workers by redefining full-time under the law to be 40 hours a week.
Overall the jobs report is a hopeful sign that the economy will avoid its fourth consecutive year of a spring-summer growth setback. The economy seems to be absorbing the big tax increases that hit in January. Growth is slower than it should be but still faster than stall speed.
With the Federal Reserve promising more bond-buying until the jobless rate hits 6.5%, investors are expecting a super-accommodative Fed through well into 2014. Inflation has also stayed under control, due in part to the relatively strong dollar and slower growth in Europe and other parts of the world.
Our guess is that the economy is also benefitting from the arrival of what might be a more durable gridlock in Washington. Earlier this year, President Obama was able to rout the GOP on taxes, and it looked like he might be able to extract even more antigrowth policies. But his sequester bluff failed, and federal spending is being cut for the first time in nearly two decades. The House GOP seems united against further tax increases except as part of a tax reform that reduced tax rates. This gridlock isn't as benign as the Gingrich-Clinton version in the late 1990s, but at least it promises less policy damage than we've witnessed in the last four years.
Left to its own devices, the U.S. economy will grow as individuals and businesses try to improve their lot and expand. The tragedy of the last four years is that Washington tried to supplant or interfere with those decisions with a wave of regulation, spending and taxation.
With the exception of new regulation, and the uncertainty over the ultimate cost of unwinding the Fed's interventions, the potential for new harm from Washington has eased. The more it eases, the more private hiring and higher wages we are likely to see.