U.S. unemployment sinks to 8.9% as jobs are created

Economists say the recession ended in June 2009, but average Americans might look back on February 2011 as the point when the country finally turned the corner.

The Labor Department said the economy added 192,000 new jobs last month, a sharp increase that helped trim the unemployment rate to 8.9% — the first time it has been below 9% in nearly two years.

The nation’s economy finally appears to be reaching “escape velocity,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York. He pointed out that Friday’s solid jobs report followed encouraging data on auto sales, chain store revenue and other economic barometers.

The missing piece has been the large-scale hiring needed to repair the severe damage to the job market from the deep recession, and that appears to be underway.


“It’s no longer appropriate to call this a jobless recovery,” Rupkey said.

In a separate report released Friday, the California economy added just 12,500 new jobs in January and the state’s unemployment rate dipped to 12.4% from 12.5%. That report lagged a month behind, however, and the job market was weak across the country in January because of severe weather.

But although the nation’s job engine appears to be revving, rising oil prices could apply the brakes. Volatility in that market, sparked by turmoil in the Middle East and North Africa, continues to spook many on Wall Street. A jump in the price of oil Friday to a 2½-year high led to an 88.32-point drop in the Dow Jones index.

Rising oil prices are raising the specter of inflation, which is stirring concern that central banks might tighten interest rates and stunt the global recovery. What’s more, higher prices at the gasoline pump could dampen consumer demand for other goods, economists warned.


“Gas is going up. Food prices have jumped again. You’re sitting there with your unemployment check and everything is so expensive,” said Karen Flynn, 62, of Santa Clara, an unemployed high school teacher. “The minute you get in your car, it’s costing you money.”

Nigel Gault, chief U.S. economist for IHS Global Insight, noted that the February jobs report and much of the recent positive data don’t reflect the surge in gas prices. But he said the economy’s positive momentum “suggests the oil shock may dampen things a little bit but not derail the recovery.”

The unemployment rate has plunged nearly 1 percentage point in three months — it was 9.8% in November — for the biggest such drop since 1983. That is helping spread optimism about the recovery.

Atlas Machine and Supply Inc. in Louisville, Ky., has hired a dozen workers in the last year as factories have ramped up production.


“Things are improving, there’s no question about that,” said Rich Gimmel, president of the company, which produces machinery for steel mills and other manufacturers and has 200 employees. “We’ve seen an increase in demand.”

But Gimmel said that the rising prices of oil and other commodities pose a hurdle and that businesses need to see more positive economic signs before they start hiring at full speed.

Private-sector hiring drove February’s increase. The nation added 222,000 new private-sector jobs, with gains in manufacturing, construction and several service areas, including healthcare. The government workforce shrank by 30,000 in February, driven mostly by cuts by states and municipalities.

Friday’s report was a marked improvement over the 63,000 new jobs added in January.


Gault cautioned that February’s job numbers probably reflected some hiring that employers had delayed during January’s rough weather. In January and February, the economy added about 128,000 new jobs a month, a rate that isn’t yet enough to make a huge dent in unemployment, Gault said.

There’s still a long way to go. A broader measure of unemployment, which includes people working part-time because they couldn’t find full-time jobs and workers who have given up looking for jobs, stood at 15.9% in February. Still, that was down from 16.1% in January and 17% in November.

Anthony Chan, chief economist at J.P. Morgan Private Wealth Management in New York, said there was still a lot of room for improvement in the labor market. For example, he noted average hourly earnings were up just 1 cent last month to $22.87. Higher wages fuel consumer spending.

Such indicators show the job creation engine isn’t yet “hitting on all cylinders,” he said.


Investors also were troubled by the negligible rise in earnings. They worried that stagnant income levels in the face of rising gasoline prices could cause Americans to scale back their spending in other areas.

“You’ve got several things all at once in the worry zone,” said Robert W. Bissell, president of Wells Capital Management in Los Angeles.

Still, February’s job growth was the largest monthly increase since May, when the effects of the Obama administration’s massive stimulus package were at their peak and the government was hiring thousands of temporary census workers.

Improved job growth is good news for President Obama, who said Friday that the nation needed to “keep building on that momentum.” And the Obama administration used the news to warn against deep spending cuts being pushed by congressional Republicans.


Noting that there was still more economic work to be done, top White House economic advisor Austan Goolsbee said the administration would seek to “find ways to reduce spending, but not at the expense of derailing progress in the job market.”

Ben S. Bernanke, chairman of the Federal Reserve, told lawmakers this week that there was “increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold.”

Initial claims for unemployment insurance fell last week to 368,000, the lowest level in nearly three years, the Labor Department reported. Large retailers reported sales were up 4.2% in February compared with the same month last year.

The Fed projects the economy will grow 3.5% to 4% this year.


Unrest in the Middle East looms as a potential problem for the recovery. A sustained rise in prices for oil and other commodities would threaten the recovery, Bernanke said.

But, Bernanke added, he did not expect the rise in oil prices caused by the Middle East turmoil to last.

Times staff writer Walter Hamilton contributed to this report.