Employment Growth Will Soon Average 200,000 Jobs
NEW YORK (TheStreet) -- U.S. employment growth may move significantly higher over the summer months as worker productivity begins to fall.
The payrolls figure came in above estimates on Friday, reporting that the economy added 175,000 jobs in February, vs. an expected 137,000 jobs.
Similarly, the unemployment rate rose to 6.7% vs. an expected drop to 6.5% as people rushed back into the labor force looking for jobs after being stuck indoors due to bad weather storms the past few months.
The employment growth shows that the labor market remains strong, but lower productivity, reported the day before, highlights the economy's need for more workers in coming months.Employment growth and productivity share an inverse relationship, since a more productive workforce means employers can hire less and achieve the same output. Nonfarm productivity fell to a 1.8% rise during the fourth quarter of last year from a 3.2% rise the previous quarter. Meanwhile, for all of 2013, productivity increased 0.5%, its smallest gain since 1993. Looking at a chart of both productivity and employment growth over the last 10 years, it is noticeable that major pivot points in productivity precede movement in hiring trends. There is one very noticeable pattern, shown in the chart below, which forecasts average growth of more than 200,000 jobs this summer. The pattern developed just after the financial crisis in 2009. As the economy emerged from recession, productivity growth began declining from record highs. Companies had been forced to cut costs during the recession, and as revenue plummeted, worker productivity rocketed to more than 7% growth in order to maintain profitability. When revenue did begin rising in early 2010, the need for a hyper-productive workforce subsided, and companies began hiring, leading to spikes above 300,000 jobs added in some months. It is unlikely that we see growth of 500,000 jobs in any month this summer, but we are not recovering from the recession in the same way we were in 2010. Nonetheless, the relationship between productivity and jobs growth is very predictive, and with a noticeable slowdown in productivity over the past few months, companies may begin hiring at much faster rates for the rest of the year to maintain output. US Productivity data by YCharts
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