Unemployment is down, market is up and economy is still teetering

U.S. equity markets are on a roll and unemployment is coming down -- could happy days be here again?

Not really. Although unemployment hit its lowest level in more than four years in February and the Dow Jones industrial average spent much of last week in record territory (largely because the Federal Reserve is keeping interest rates near zero), other indicators show the economy is still soft and Washington's endless wrangling could put a damper on the still-nascent recovery.

The Labor Department's Bureau of Labor Statistics Friday reported unemployment fell 0.2 of a point in February to 7.7 percent from January and 236,000 jobs were added to the economy.

Good news as far as it went. But 295,000 adults dropped out of the workforce.

"Most of the reduction in unemployment from its 10 percent peak in October 2009 has been accomplished through a significant drop in the percentage of adults working or looking for work. Were the participation rate the same as when President Obama took office, it would be about 10.9 percent. Adding in part-time workers who would prefer full employment but can't find it, the unemployment rate becomes 14.2 percent," University of Maryland economist Peter Morici argued in a release.

But Alan B. Krueger, chairman of the President's Council of Economic Advisers, hailed the numbers.

"Today's employment report provides evidence that the recovery that began in mid-2009 is gaining traction," Krueger said in a White House statement, adding the job of fixing the economy still isn't over and the statistics do not include the effects of the sequester -- the $85 billion in across-the-board defense and domestic spending cuts that went into effect a week ago.

Christine Owens, executive director of the National Employment Law Project, warned the Washington budget/spending war could put the brakes back on an economy that has yet to recover fully from the recession that began in December 2007.

"Unfortunately, the heavy-handed budget cuts forced by the sequester threaten serious harm to our economy and to our nation's long-term unemployed workers, who are among the Americans who'll feel these stupid and senseless cuts most deeply," Owens said.

The Congressional Budget Office has estimated the sequester cuts could cost 700,000 jobs. Furlough notices already are in the works for some federal employees, many of whom face a 20 percent reduction in salary. The long-term unemployed could see an 11 percent cut in benefits this year.

So far this month, reports from various agencies indicated the economy is still teetering. Wholesale inventories rose in January, factory orders dropped and income fell in January (although consumer spending was up slightly). The U.S. trade deficit rose to $44.4 billion in December and productivity fell in the final quarter of 2012.

On the good news side, first time unemployment claims fell 7,000 to 340,000 last week.

The United States isn't the only place unemployment is still high. Canada reported its February rate stayed at 7 percent, Spain reported unemployment at more than 26 percent and the eurozone reported unemployment at 11.9 percent.