Economists warn positive jobs report obscures challenges ahead

A surprising February jobs gain and drop in the unemployment rate is obscuring the long road to a full recovery from the coronavirus recession, economists say.

The U.S. added 379,000 jobs last month, more than double what analysts had expected, and saw the jobless rate drop to 6.2 percent, the lowest level since March 2020.

While the February employment report showed signs of an accelerating recovery, the job gains were just a drop in the bucket compared to the deep damage built up within the labor market over the past year. The deceptively low unemployment rate also ignores the millions of Americans who've been forced out of the labor force by COVID-19 and its disproportionate toll on women of color.

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“The numbers are not debatable, they're not dubious, they're not confusing. It's clear. Millions of Americans have left the workforce and that is not good for our economy and definitely not good for continued growth of the economy,” said Michelle Holder, a labor economist at John Jay College in New York.

February’s employment gains were an undeniable improvement from January’s meager increase of 49,000 and included signs of businesses gearing up for a post-pandemic economy. The hard-hit leisure and hospitality sector added 355,000 jobs, predominantly at restaurants and bars long hindered by coronavirus restrictions.

Even so, the remarkable gain in that sector covers just slightly more than one-tenth of the 3.5 million jobs in that field claimed by COVID-19 yet to be replaced.

The U.S. is still down roughly 9.5 million jobs from the start of the pandemic, more than the total employment decline during the Great Recession, a gulf that would take more than two years to fill at February’s pace.

Elise Gould, senior economist at the Economic Policy Institute, calculated that employers would need to add an additional 2.4 million jobs to cover those that would have been gained if COVID-19 never derailed the economy.

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“Getting back to pre-recession levels would not come close to filling in the total jobs gap,” she wrote.

The unique toll of the pandemic has also rendered the unemployment rate — the number of people who can’t find work divided by the number of people who are employed or trying to find a job — nearly useless for gauging the health of the labor market.

More than 4 million Americans have stopped looking for work due to the pandemic, according to the February jobs report, with many exiting the workforce to look after school-age children, take care of sick family members, or avoid contracting the virus. Since the jobless rate doesn’t include those not seeking employment, many Americans who would otherwise like to work are not represented in that headline figure.

Federal Reserve Chairman Jerome Powell said during a speech last month — when the jobless rate was 6.3 percent — that an unemployment rate including those lost workers would be closer to 10 percent.

As the unemployment rate dropped slightly in February, the labor force participation rate held at 61.4 percent, 1.9 percentage points lower than it was a year ago. The employment-to-population ratio — the proportion of working-age adults with jobs — was also unchanged, at 57.3 percent, down 3.5 percentage points from February 2020.

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“This is not to say the headline unemployment rate is wrong, simply that in a pandemic, getting a full view of the economy requires looking at the data in multiple ways,” wrote Cecilia RouseCecilia RouseOn The Money: Inflation spike puts Biden on defensive | Senate Democrats hit spending speed bumps | Larry Summers huddles with WH team Larry Summers, White House officials meet to discuss Biden agenda Biden releases T budget that foresees decade of trillion-dollar deficits MORE, chair of the White House Council of Economic Advisors, in a Friday analysis.

The unemployment rate is often deflated during prolonged downturns when eligible workers lose confidence in the labor market and stop searching for jobs. While the same dynamic suppressed the jobless rate during the Great Recession, the pandemic has thrown it into overdrive with devastating consequences for women and people of color.

Rouse calculated that while Black women comprised only 14 percent of the female labor force in February 2020, they’ve accounted for 26 percent of female labor force dropouts since then. Similarly, Hispanic women made up 17 percent of the female labor force a year ago, but are 27 percent of the women who have left.

Overall, 2.3 million women and 1.8 million men have stopped looking for jobs, and economists say it will take more help from the federal government to bring them back into the fold.

“Today’s jobs report, combined with the revisions to previous months and the pattern of retail sales, underscores how dependent upon federal aid the recovery remains,” wrote Diane Swonk, chief economist at Grant Thornton, highlighting the January surge in consumer spending that followed the December relief package getting signed into law.

“Much of what was targeted to low-wage households struggling with unemployment is scheduled to lapse again in mid-March,” she wrote. “We are still in a very deep hole.”

Biden and congressional Democrats are attempting to pass a $1.9 trillion economic relief bill with an extension of expanded jobless benefits before they expire on March 14. While those unemployment programs will briefly lapse, the quick disbursement of another round of stimulus checks could help smooth over the lost income for struggling families.

"These gains are going too slow,” Biden said Friday at the White House. "We can't go one step forward and two steps backward."

Economists argue the U.S. is still poised for a strong rebound once the country achieves herd immunity — potentially by the middle of summer — and can return to some semblance of normal life. And while economists acknowledge there’s a light at the end of the tunnel, they say the tunnel may be far longer than it seems now.

“I do expect [the unemployment rate] to continue to come down, whether sharply or not, but I am concerned about the degree to which we are able to get people back into the American workforce who have disengaged from it,” Holder said.