August Jobs Report Shows Biggest Growth Story Success Since Great Recession

NEW YORK ( TheStreet) -- Five years to the month removed from the collapse of Lehman Brothers, Americans bustling into their offices on Friday morning received a pleasant reminder that the recovery is really a success story.

The Bureau of Labor Statistics reported that the United States added 169,000 jobs in August as the unemployment rate ticked down to 7.3% from 7.4% in the prior month. Though economists surveyed by Thomson Reuters and Bloomberg expected 180,000 new jobs, the miss and the downward revisions weren't terrible.

The data, when placed among other recent economic reports, is a subtle reminder that the economy actually looks pretty good.

"I can tell you that they're Americans still thinking about 2008, and they keep confusing, fundamentally, they continue to confuse a slow successful recovery with failure," said Lee Munson, chief investment strategist at Portfolio, LLC. "If we were growing at 6% in the 1980s, and now we're at 2% or 3%, people still see that as negative three, not positive three."

Let's connect the dots.

The 4-week moving average for jobless claims during the week ended Aug. 31 dipped to 328,500, which was the lowest level since October 2007 when the average hit 328,300.

The Institute for Supply Management's manufacturing index rose to 55.7 in August -- its highest level since June 2011, and a level higher than any month from early 2006 up to the start of the financial crisis.

The second estimate for U.S. second-quarter gross domestic product gained to 2.5%, up from the advance estimate of 1.7%, despite the fiscal drag that continues to weigh on the economy.

Existing home sales for July actually rose to a 5.39 million annual rate, the highest level since November 2009 when an expiring tax credit triggered demand to buy real estate. Excluding that outlier, it was the highest number since March 2007.

The list of improving data points extends beyond these examples, but it does reflect a trend that the economy is improving across a range of sectors.

Loop the monthly jobs report back into the mix, and consider that the preliminary read on August payrolls fell near the median of monthly reports since the beginning of 2010. It wasn't quite the 332,000 pop the U.S. enjoyed in February or the 521,000 surge in May 2010, but the private sector is still leading labor growth as Congress' sequester is offsetting those gains with government cuts.

The knock against private sector growth has been that many of the hires are part-time or temporary work. Janette Marx, senior vice president at Adecco Staffing U.S. -- an executive search firm -- says she is seeing a reversal in this trend.

" Our customers are starting to say 'We want a full timer' and/or they're starting to hire some of the people who have been temporary on their payrolls," said Marx. "So we're starting to see more of that commitment, and when we start to see that change it's a positive sign for the overall economy."

Critics of the steady tick lower in the unemployment rate point to the sinking participation rate, which in August hit its lowest level in 35 years. Various economists and analysts have attributed this decline to baby boomers reaching retirement age and possibly to an increasing number of younger people attending grad school.

Uncertainties about the Patient Protection and Affordable Care Act (known as Obamacare), tax regulations and growing number of individuals on entitlement programs have reduced the participation rate and slowed labor market improvements, said Steven Raz, managing partner at Cornerstone Search Group.

"A lot of that just causes uncertainty, which really just causes people to stop in their tracks until they get some clarity," said Raz. "And there's a lot of other entitlement programs that I think people kind of think twice: 'Hey, you know, I might as well stay home because I'm probably going to earn maybe a little bit more than going trying to find a job."

Marx said that although Obamacare may be a cause for concern among small businesses, it remains hard to draw a direct correlation to the argument that the law is forcing small businesses to hire more part-time workers or none at all.

"The Affordable Care Act is talked and discussed a lot within the business community, and I think it's discussed so much because people are trying to model what the cost impact will be to their business and to help that shape the decision that they need to make whether they're going to play or pay with the program."

The final part of this equation is the indirect effect that the monthly jobs report is having on stock markets. The BLS' employment situation report by itself is a lagging economic indicator that can independently move markets, but the most influential catalyst has been the Federal Reserve's economic stimulus program.

The Fed clearly stated that the decision to curb its monthly purchases in mortgage-backed securities and longer-term Treasuries would closely monitor the health of the labor market. A strengthening labor market, the central bank has said, would allow for it to scale back so-called quantitative easing.

Many market participants have argued that unprecedented monetary stimulus has stimulated the bull market run that's occurred since the S&P 500 bottomed in March 2009. Skeptics of the recovery contend that if the Fed starts to rein in its stimulus program, it will sink the economy into certain decline.

It's not an unfair criticism as the economy struggled after the end of "QE2" -- the Fed's second monetary stimulus program since the financial crisis -- only to find a spark when Fed Chairman Ben Bernanke implemented Operation Twist. Again the economy slowed into the summer of 2012 and prompted the central bank to implement unprecedented "open-ended" monthly purchases of mortgage-backed securities, followed a few months later by additional monthly purchases of longer-term Treasuries.

Some economists and analysts aren't as frightened by the decision to taper.

"Tapering is not just about this one number. Taper is as much about politics and removing market distortions as it is whatever the Fed speakers try and say it is about," Peter Tchir, head of TFMarket Advisors, said in a note.

Another worry is that tapering of monetary stimulus will raise interest rates, making it more difficult in a recovering economy for people to take out and repay loans. Bernanke explicitly has said tapering or an eventual end to QE does not mean the central bank will raise the federal funds rate.

As for the rise in the 10-year Treasury note's yield, which just peaked above 3% for the first time since 2011, Portfolio LLC's Munson said this isn't a bad situation for investors. Munson said there historically is strong correlation between equity markets jumping when you have rising interest rates on the 10-year so long as it's below 5%.

"When it gets above 5% then, yea, it's a different game; you have to think," said Munson. "Sorry, doesn't mean you have to change what you're doing, but you have to think a little bit more."

When contemplating Friday's jobs report, it may be wise of investors to consider it in context. Friday's market action was volatile: Futures markets moved higher after the 8:30 a.m. ET release of the report as traders assumed that the weaker-than-expected data would force the Fed to keep up the pace of its stimulus program, but stocks sold off in the early morning of the regular session as traders worried that 169,000 payrolls added was relatively decent. By 4:00 P.M. ET, markets closed exactly where they started: unchanged.

What isn't unchanged is the U.S. economy's steady improvement.

-- Written by Joe Deaux in New York.

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