The voices of Urban Institute's researchers and staff
March 22, 2012

Third time’s a charm? Will the job market recovery stick?

March 22, 2012

We’ve seen this before. As winter turns to spring, the unemployment rate drops, and optimism about a recovery in the job market begins to bloom. The signs are certainly encouraging: since last September, the unemployment rate declined from 9.0 percent to 8.3 percent. But we’ve seen nascent job market recoveries in the early spring wither during the past two summers. The unemployment rate peaked at 10 percent in the fall of 2009, dropping to 9.4 percent by June 2010. But by November 2010, the unemployment rate had climbed back up to 9.8 percent. In the spring of 2011, the rate fell back to 8.9 percent, but progress stalled and unemployment hovered around 9 percent into the fall. Is there any reason to believe this spring will be different?

Other indicators of the labor market’s health such as initial jobless claims, the number of job openings, and labor force participation results suggest that the third time may be a charm. The number of people who lost their jobs and filed initial claims for unemployment compensation in the average week in February 2012 was about 355,000 (seasonally adjusted). That’s down from over 390,000 new claims per week on average in February 2011 and 475,000 in February 2010. Far fewer people are entering unemployment this spring than in the past two years. The news could be better, though: in February 2007, before the recession began, 321,000 people per week filed initial claims for unemployment on average.

Unlike in the past two years, the number of job openings has risen. At the end of January 2012, approximately 3.5 million jobs were available. Job seekers still outnumbered jobs, but the situation is far better than in January 2010 and 2011 when there were only 2.7 and 2.8 million job openings, respectively. Again, we have not reached pre-recession levels: in January 2007, 4.6 million job openings were available.

The trend in labor force participation this spring is more encouraging than in the past.  The unemployment rate can decline if people simply stop looking for work and leave the labor force. The declines in unemployment in 2010 and 2011 were accompanied by year-over-year declines in labor force participation of 0.9 and 0.7 percentage points, respectively (as measured from February to February). Between February 2011 and February 2012, labor force participation did decline, but by only 0.3 percentage points. Nevertheless, recent labor force participation rates are as low as they have been since the early 1980s (below 64 percent), and in the years just prior to the recession, the rate hovered around 66 percent.

So will the labor market keep getting better? There certainly is more reason for optimism this spring than in the past two. But external events—a debt crisis, a natural disaster, another war, or even rising gas prices—could derail this nascent recovery in the job market. We can’t predict the future (as many people’s NCAA brackets can attest), but if this spring gives way to a summer and fall of stagnation or regression, it will feel more like “three strikes and you’re out” instead of “third time’s a charm.”

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