February Unemployment Rate Drops to 7.7% Amid Fear Of Sequestration Impact

The February job report was stronger than expected. The unemployment rate dropped from 7.9% to 7.7% and the economy created 236,000 jobs. The ADP National Employment Report said the economy created 198,000 jobs from January to February, including 77,000 jobs in the small business sector. The ADP Small Business Report indicated that small businesses accounted for 77% of the new jobs created.

The encouraging report is the latest indication that the country is inching its way back to health. Earlier this week the Dow Jones reached an all-time high of 14,253.77 and The Standard & Poor’s 500-stock index approached a record 1539.79. Brian Hamilton, chairman of the consulting firm Sageworks told ABC News, “Private companies, which provide vast majority of new jobs, continue to grow, which is good news for the economy.”

Despite the relative good performance of the stock market and the resultant impact to 401K earnings, income is down in American households. The median annual household income in January 2013is 4.5% lower than it was when the recovery began in June 2009, is 6.2% lower than it was when the recession began in December 2007 and is 7.3% lower than it was at the turn of the millennial in January 2000.

The labor condition within major work demographic groups continues to be uneven. The labor report stated “the unemployment rate for whites (6.8%) declined in February while the rates for adult men (7.1%), adult women (7.0%), teenagers (25.1%), blacks (13.8%), Hispanics (9.6%), and Asians (6.1%) showed little or no change.

The labor report indicated that the gains were primarily in the professional and business service sector (73K), construction (48K), retail (24K) and health services (32K). Government employment shrank by 10,000. Construction employment has grown by 151,000 since September and this month was equally split between residential and non-residential specialty trade contractors. The motion picture and sound industry contributed to an increase of 20,000 jobs in the entertainment information industry.

The February report comes ahead of the looming impact of the sequester cuts that went into effect March 1. CBS News reported that economists are in a wait-and-see mode as to “whether the U.S. economy is strong enough to weather the cuts and continue to create enough private sector jobs to compensate for the government jobs that could vanish.”

Capital Economics found that “despite the continued drag from fiscal austerity, the outlook for the economy is improving.” The company said that “business investment is accelerating,” “manufacturing has started to pick up,” and "consumers appear to be absorbing the expiration of the payroll tax cut, without too large a hit to confidence or spending.”

According to CBS News the analysis indicates that the economy will continue to grow and create jobs despite Washington antics.

Economist John Lott Jr. disagrees with the rosy projections. Writing for Fox News, Lott says that the drop in unemployment is still primarily due to people dropping out of the laborforce. Lott points out that the job growth during the recovery has only been 2.5% compared to 9.2% during the average recovery since 1970 and the number of people hired in December is lower than the number of new hires during the recession and is lower than the same period before the recession.