Despite constant budget fights in Washington, the U.S. economy managed one of the best months for job gains in the past year in February, driving the unemployment rate to its lowest level in more than four years.
But the job market would be even better, and the unemployment rate even lower, had not the government spent most of the recovery cutting spending and jobs. And though Wall Street may cheer February's jobs report, the pain of government cutbacks looks to get worse as the year goes on.
U.S. employers added 236,000 jobs to non-farm payrolls in February, the Bureau of Labor Statistics reported on Friday, up from 119,000 in January. That was the best payroll growth since 247,000 jobs last November and the second-best month for job growth of the past 12 months.
The unemployment rate dropped to 7.7 percent from 7.9 percent in January, with 12 million people looking for work. That is the lowest unemployment rate since December 2008, when the rate was 7.3 percent.
"The recovery is gathering momentum," Paul Ashworth, chief U.S. economist at Capital Economics, wrote in a note.
But U.S. non-farm payrolls are still 3 million jobs shy of their pre-recession highs, and the jobless rate is still too high to convince the Federal Reserve to stop pumping cash into the economy.
Meanwhile, a higher payroll tax rate, the harsh budget cuts of the "sequester" and other effects of Washington's endless budget wars could carve 1.5 percent from economic growth this year and cut at least 700,000 jobs in the next two years, according to recent studies by the private forecasting firm Macroeconomic Advisers.
"There really is the potential for trouble ahead," Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors, wrote in a note. "You can't take 1.5% of GDP out of the economy and see no hit."
The report was significantly better than Wall Street expected, and U.S. stock prices rose, pushing the Dow Jones Industrial Average to a new record high of about 14,400. The broader Standard & Poor's 500-stock index also rose, coming within points of its record. Economists, on average, expected 160,000 payroll jobs and a 7.9 percent unemployment rate in February, according to a Reuters survey. Prices of safe-haven Treasury bonds slumped, on the other hand, driving 10-year Treasury note yields to 2.08 percent, their highest since April 2012. Bond prices and yields move in the opposite direction.
The report came with plenty of caveats. January job growth was revised down sharply, from 157,000 to 119,000 jobs. And the unemployment rate fell in large part because the labor force shrank by 130,000 workers. Labor-force participation has never recovered from the recession, suggesting either that large numbers of workers have retired early -- or have simply given up trying to find jobs. Frustratingly, long-term unemployment rose, notes the Huffington Post's Arthur Delaney.
Average hourly earnings for workers, meanwhile, rose 0.2 percent to $23.82 from $23.78 in January. They are up just 2.1 percent in the past year, barely keeping pace with inflation -- despite record corporate profits and cash hoards. Wages have grown just 12 percent since the recession began in December 2007.
Even with January's downward revision, the economy has added 191,000 jobs per month, on average, for the past three months, slightly outpacing the growth rate of the past two years. That should be enough to drive the unemployment rate slowly lower.
Including February's jobs, the U.S. economy has added 5.7 million jobs since the labor market bottomed in February 2010, but non-farm employment is still 3 million jobs lower than before the start of the recession in December 2007, making this the slowest labor-market recovery since World War II.
After peaking at 10 percent in October 2009, the unemployment rate has been grinding lower, but far too slowly. As a result, the Federal Reserve has kept short-term interest rates near zero for more than four years and has launched a series of unprecedented bond-buying programs to further bolster the economy.
The Fed is getting no help from Washington, which in a panic about budget deficits has been slashing government spending and jobs, contributing to the weak recovery. If government employment had just held steady since the end of 2008, instead of cutting more than 700,000 jobs, the unemployment rate would be 7.2 percent today, noted the Wall Street Journal's Justin Lahart.
The government sector cut 10,000 more jobs in February, and those numbers could get worse later this year as the effects of the harsh budget cuts of the sequester take effect.
Among the sectors adding the most jobs in February were construction, which hired 48,000 people; health care, which added 32,000 people; and the retail sector, which added nearly 24,000. Temporary services payrolls grew by 16,000, possibly a leading indicator for future hiring. The motion-picture industry added 20,800 jobs.
This post has been updated with details throughout.