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MarksJarvis: Jobs, housing coming back, but slowly

Revival could be years away

Gail MarksJarvis

March 13, 2013

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The job market is on the mend, but it still seems to have a long way to go to lift a wide swath of Americans out of their frugal ways.

That is unless the surprisingly large job numbers that were reported for February are repeated month after month, which economists see as unlikely.

If the economy gains 236,000 jobs per month repeatedly, as it did in February, Gluskin Sheff economist David Rosenberg estimates the unemployment rate could be down to 6.5 percent by the end of summer.

In other words, that rate could hit the encouraging level the Federal Reserve wants to see before considering a pullback on stimulus.

Yet one month of remarkable numbers doesn't necessarily make a trend and there is still substantial weakness in the labor market.

Rosenberg figures a 6.5 percent rate is at least a year away.

If February turns out to be an anomaly and the labor market grows as it has between 2009 and early 2013, it could take until 2018, he said.

Still, the surge in February jobs is providing a reason for optimism among those hoping to find work. And everything from a record high in the Dow Jones industrial average to rising home prices seems to be making consumers feel more comfortable about spending.

"Today's retail sales report will be the test," said economist Jim O'Sullivan, of High Frequency Economics, referring to Wednesday's Commerce Department report.

Economists have been concerned about what gasoline prices and higher payroll taxes would do to consumption, but O'Sullivan said "the most important driver over time is wage income. Encouragingly, wage income appears to be picking up."

That might be why consumer spending held up as well as it did in January despite a 0.9 percent hit to disposable income from the payroll (FICA) tax increase, he said.

In addition, the economy might be getting a lift from the so-called "wealth effect."

After a record high in the stock market this month and signs of stability in the housing market, American households have regained most the $16 trillion they lost in the financial crisis and recession.

According to the Federal Reserve, household wealth at the end of 2012 was $66.1 trillion.

That's still below the $67.4 trillion peak in wealth that graced households in the third quarter of 2007 but substantially better than the gloomiest point in the recession when wealth had sunk to $51.4 trillion in the first quarter of 2009.

The return of wealth should be helping individuals feel like buying, and perhaps inspiring employers to hire. But issues remain.

The so-called JOLTS report released by the U.S. government Tuesday shows employers still reluctant about hiring and individuals clinging to jobs rather than moving to greener pastures.

JOLTS stands for "job openings and labor turnover," and Federal Reserve Vice Chairwoman Janet Yellen mentioned in a recent speech that she wants to see stronger rates of hiring and people changing jobs as she examines strength in the economy.

Instead of an upturn, JPMorgan Chase economist Daniel Silver said the rate of hiring held at 3.1 percent in January, "keeping on the low end of the range reported since late in 2010," even though the number of hires edged up a modest 1.2 percent.

The rate of people quitting jobs and moving on has been the same since July 2011, at just 1.6 percent a month.

Meanwhile, despite the surge in job growth in February's unemployment report, "the average unemployed individual is out of work for 36.9 weeks, showing considerable long-term unemployment," said Bank of America Merrill Lynch economist Michelle Meyer. And only 63.5 percent of the potential labor force is in a job, the lowest level since 2007.

The positive piece of the jobs picture involves layoffs.

The number reported in January was the lowest since 2000, Silver said.

Economists are predicting that as the housing market improves, the job market will too.

About 2 million jobs were lost in construction as homes plunged about 30 percent in price during the housing bust.

Now, Meyers says, the belief that homes are climbing in value will inspire more people to buy homes.

The housing market is showing "signs of sustainable recovery," Meyer said. But it's "still far from normal."

"The key component of a normal housing recovery is access to credit," she said. "There are signs of improvement, but it has been slow thus far."

She estimates home prices will increase 8 percent this year, after gaining 7.3 percent in 2012.

That should help with the wealth effect too. Middle-income people have most of their wealth in their homes rather than the stock market. And if homes start rising in value along with jobs, that could give the economy the pickup it needs.

gmarksjarvis@tribune.com

Twitter @gailmarksjarvis