February Jobs Report Is 'Good News' For The U.S. Economy, But There's Still A Long Way To Go

The U.S. Department of Labor reports that the U.S. economy added 379,000 jobs in February, and the unemployment rate dropped slightly to 6.2 percent. The report is much stronger than economists predicted, and a sign that businesses are bouncing back as COVID-19 cases across parts of the country are trending downward. GBH Morning Edition host Joe Mathieu spoke with Boston College Economics Professor and former Clinton Administration Senior Economist Bob Murphy to learn more about what the report could signal about the country's economic recovery. The transcript below has been edited for clarity.

Joe Mathieu: Since interest rates have been scaring investors lately, the stock market's been selling off on higher interest rates, worries about inflation. We've been living in this world where bad news on Main Street is good news on Wall Street. So how are you reading this?

Bob Murphy: Well, as you mentioned, the market seems to be taking this quite well. 379,000 jobs in a given month in normal times would be a big blip upward. In our current environment, it's well above the consensus. So it's good news. There's no other way to read this report than good news in terms of the labor market really starting now to, I think, build up a head of steam. I think it reflects the fact that we've seen COVID case loads dropping, we've seen vaccination rates now moving up [and] we've seen some opening up around the country. That's all feeding into this, I think, renewed interest in bringing people on board at companies. So, again, good news. Still, though, I want to point out that we're nine and a half million jobs below where we were before the pandemic, and that's a huge hill that we still need to climb.

Mathieu: Well, it was just this week I started hearing references — and maybe I'm late to this, Bob — to a jobless recovery, much like we've had in a lot of recoveries from recessions in the past. But this was a man-made recession, as they say. We decided to shut things down; it wasn't part of a natural economic cycle. So why wouldn't the jobs come back?

Murphy: I think that's a good question. We're clearly in an environment that's different this time around — man-made disaster, if you will, in terms of having to close things down. The fundamentals of the economy were strong going into the pandemic. We don't have the overleveraging that existed back in the financial crisis more than 10 years ago now. So the dynamics, I think, for the labor market to improve more rapidly are in place. That said, there has been a bifurcation in terms of who's been hit hardest. So I would argue that at the lower end of the income spectrum, in lots of service jobs, we've seen much greater, disproportionate fallout than we did obviously in the Great Recession. The higher end people are doing reasonably well. So the concern, I think, going forward [is] a jobless recovery, but maybe more so for these sectors that might not come back as quickly.

Mathieu: Understood. Bob, I know you've had all [of] about five minutes to go through this report, but are there areas of strength, areas of weakness when it comes to industries? We've been waiting for a recovery, for instance, in the leisure industry here in Boston. The hotel business has been among the hardest hit.

Murphy: Right. Well, from the report, it actually showed a nice strengthening in employment in leisure and hospitality — a gain of 355,000 jobs in those industries. And that reflected, I think, the opening up that we've seen around the country. People [are] feeling a little bit more confident now about going out and going to places of business. Another strength was temporary help services. Now, you might think that gains in the temporary help area are not something to make a big deal about because it's not a permanent job. But typically, as the labor market recovers, we see people coming on in a temporary capacity initially, and then oftentimes many of those jobs will develop into a permanent job. So that's another strong point in this report. On the negative side, we continue to see local government employment in the education sector decline, as well as at the state level in the education sector. So, again, some good news for, I think, the service sector and for retail and hospitality.

Mathieu: It's much stronger than expected. And, Bob, we've been seeing as we began our conversation, the stock market sell off on perceived worries about inflation. A lot of people think that this has been way overdone. We heard from the Fed chair yesterday, Jay Powell, who was very dovish on this whole idea about interest rates. Are you worried about a big jump in inflation that could cause problems in the second half of the year, if everybody rushes back to work, starts going on vacation and living life again?

Murphy: My view is that inflation right now is well contained. We've been running through a period of time where, if anything, it's been difficult for the Federal Reserve to move the inflation rate up toward their target. Right now, we're running, I think, somewhere around one and a half percent on their preferred measure. So again, well below two percent. Burst of spending coming online — pent-up demand from folks who haven't been able to get outside and spend. Also, I think the relief package that's now moving through Congress will be a burst of fiscal spending that certainly will add to demand pressures. Prices are likely to move up a bit, so my guess would be we will see higher inflation as we move through this year and maybe even into the next year. But my belief is that's still going to be relatively modest. Maybe we'll move above two percent for a little while. The Federal Reserve, Jay Powell, feel that they have the tools to contain inflation if, in fact, it were to get a little bit too high in their estimation. But their perception at this point is that inflation moves slowly. It's been very, very tame for a long time. The dynamics seem to have shifted so that as the economy strengthens, the Fed as well as myself, I don't see really a movement [of] upward inflation that would be something to worry a lot about.

Mathieu: So God forbid, we've been begging for economic growth, implementing policies to make it happen, trying to create inflation and now that it's happening, we're upset about it. Bob Murphy, we have done a complete roundtrip since you and I started talking. Dow futures were up about 100. The whole thing has now turned negative [and] Dow futures are down 10 as investors chew on this thing. But this is the kind of market we're in right now, I guess.

Murphy: Yeah, as I say, can't predict where the market's going to go on the news. But one thing I would add to the question about inflationary pressures [is] the economy is currently below its potential. The Congressional Budget Office has forecasted it's going to take a couple of years, even if we see a rebound, to get back to where we would have been in the absence of the pandemic. So again, I think there's enough slack, if you will, in the economy to contain inflation pressures as they develop, and that the Fed will be vigilant as we move forward.