NFP Expected to Show Private Sector Adding Jobs

In light of Wednesday’s survey from payroll services company ADP suggesting that 217,000 jobs were created in January, estimates for the upcoming Non-Farm Payroll report have been revised upwards to 190,000 new positions. While not always the case, the ADP survey is considered a harbinger for the NFP report next scheduled for release this Friday. If the NFP does indeed follow the lead of the ADP survey, this could be the strongest indication yet that the unemployment rate may be falling faster than predicted just a few months ago by both the White House and the Federal Reserves.

Despite the upbeat news on the employment front, Fed Chairman Ben Bernanke was still cautioning officials that the U.S. faces a long, uphill climb to recover the positions lost during the recession. As recently as March 1st, the Chairman told a Senate Committee that “it could be several years before the unemployment has returned to a more normal level”.

“Following the loss of about 8.75 million jobs from early 2008 through 2009, private-sector employment expanded by only a little more than 1 million during 2010, a gain barely sufficient to accommodate the inflow of recent graduates and other entrants to the labor force.

“We do see some grounds for optimism about the job market over the next few quarters, including notable declines in the unemployment rate in December and January, a drop in new claims for unemployment insurance, and an improvement in firms’ hiring plans.”

The truth of the matter is that even though the U.S. economy appears to be adding jobs at an accelerated pace, the unemployment rate itself could actually increase even as laid-off workers return to the workforce. In January, the unemployment rate fell to 9.0 percent from 9.8 percent the month before, but predictions for February – despite the expectation of nearly 200,000 new jobs – is for the unemployment rate to increase. This is because the participation rate is also expected to rise.

The participation rate is the percentage of people in the country currently employed, plus all unemployed workers actively seeking employment. It is from this group that the unemployment rate is calculated and while this ensures that retired workers and those not interested or required to work are not included in the computation, it also excludes unemployed workers too discouraged to bother searching for employment. It is this latter group that analysts suspect could come into play.

At 64.2 percent, January’s participation rate was the lowest in nearly thirty years; however, with the employment market on an apparent upswing, analysts believe the improving situation could persuade discouraged workers to once again take up the job search. In fact, some researchers suggest that by mid-year the unemployment rate could return to the ten percent mark as the participation rate increases faster than the pace of new job creation.

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