The labor market posted surprisingly strong gains Friday, cementing the notion the nation's on-and-off job growth could finally be gaining traction. But a dark cloud hangs over Friday's otherwise sunny numbers, as experts caution that looming sequestration spending cuts could curtail job growth in the latter half of the year.
U.S. employers added 236,000 jobs in February thanks to improvement in the construction and healthcare sectors, while the unemployment rate ticked down to 7.7 percent, the Labor Department reported.
The latest jobs report is significantly better than consensus estimates, which put job growth at around 155,000. December's employment numbers were revised upward from 196,000 to 219,000 while January's numbers were revised down to 119,000 jobs added from 157,000.
Last month's job gains come on the heels of a positive ADP report released Wednesday that showed private sector companies added almost 200,000 jobs, significantly above consensus estimates of around 173,000.
"We could be at a turning point," says Diane Swonk, chief economist at Chicago-based financial services firm Mesirow Financial. "We're not at escape velocity yet, which would be sustained growth of around 200,000 to 350,000 jobs added per month, but we're nibbling around 200,000. There has been a real shift upward."
The majority of gains are tied to the housing recovery, manufacturing, and on-shoring of jobs previously based overseas. In February, employment in construction increased by 48,000, bringing total job growth for the sector to 151,000 since September 2012. The health care industry also contributed to the encouraging headline numbers in February, posting 32,000 in job in gains.
The encouraging February jobs report is supported by other data showing renewed activity in job searches both among employed and unemployed Americans. According to Experian Marketing Services, a firm that tracks 2,700 job sites, traffic is at an all-time high, with total visits in 2013 up almost 30 percent year over year.
In addition, confidence among both employed and unemployed job seekers is relatively high. Though it's fallen a bit from its October 2012 high of 95, Experian's consumer expectation index has been hovering around 90 for employed consumers and about 89 for the unemployed.
"There's almost parity between the two, and that's bodes well for the jobs outlook," says Bill Tancer, managing director of global research at Experian. "Overall, the job search data is positive."
But with $85 billion in automatic spending cuts bearing down on Washington, D.C., thanks to sequestration, positive employment numbers in the beginning of 2013 could quickly turn sour if lawmakers can't cut a deal soon.
Experts say most of the impact will be felt by federal employees inside the Beltway and in Texas and California, but considerable damage could still hit those in the private sector as government funding dries up and projects are suspended.
"Defense contractors are going to be peeling back on office space so there's a lot of potential collateral damage," Mesirow's Swonk says.
If sequestration lingers, the earliest the effects would show up in the jobs report would be in May when the Labor Department publishes April numbers, economists say. But the impact might not be too severe for a couple of reasons. For starters, the threat of sequestration was apparent for months before it became a reality, so the industry may have already accounted for potential sequester-related personnel issues, according to Nigel Gault, chief U.S. economist at financial analytics firm IHS Global Insight.
"Any firm in the defense industry, for a few months now has been very cautious in hiring because of the threat of the sequester," Gault says. "So there's probably some of that that has already been in the numbers."
Also, if federal employers are able to furlough workers instead of laying them off, those employees will still technically be employed even though they might have reduced work schedules, the impact of which would show up more in wages.