The Bureau of Labor Statistics today issued a surprisingly strong employment situation report showing 395,000 more payroll jobs than in its previous release. These broad payroll gains, in addition to the 5.7 percent unemployment rate from the household survey, should lay to rest lingering doubts about the economic recovery.

On a monthly basis, nonfarm payroll employment increased by 308,000 in March, according to BLS. For the first time in 44 months, manufacturing employment did not decline, and held steady at 14.3 million jobs. Overall, jobs growth was well distributed across the economy, with no sectors showing losses.

A Second Look

Payroll numbers surged in March, up 308,000 for the month. And once revisions to previous payroll data are taken into account, preliminary March payrolls are 395,000 higher than last month's preliminary total. March is the seventh straight month to show payroll job growth. Payrolls have not risen so steeply since April 2000, but they still significantly lag employment growth picked up by the Labor Department's household survey, which shows that 1.9 million more Americans are working since the recovery began in late 2001.

Other data from the household survey are similarly positive. While household survey numbers are not subject to sizable revisions seen in payrolls, they do vary widely from one month to the next. Even so, long term trends continue up, including the addition of 180,000 people to the size of workforce in March, or 2.2 million during the recovery.

The unemployment rate edged up slightly to 5.7 percent, which is low by historical standards and below the 6.3 percent peak of June 2003. While the rate is expected to decline even further in the months ahead, it is already within the healthy range that most economists consider close to full employment. Some level of unemployment is natural due to job turnover.

Simply put, the March employment report reinforces the positive outlook on the economy observed over the last year in the household survey and other indicators. For example, yesterday's new manufacturing numbers from the Institute for Supply Management (ISM) hit 62.5 in March, and a reading above 50 indicates growth. Rising payroll numbers should finally lay to rest the myth of a weak labor market.

Almost all of the payroll job growth came in the service sector, which makes up 80 percent of all jobs. Large job gains came from almost every major sub-sector, including construction, retail and wholesale trade, education, health care, and professional services.

Future Directions

One month's numbers only tell part of the story of employment in America. That said, the numbers from March answer a lot of questions about pent-up demand for labor. They also confirm the rule that employment tends to lag GDP growth.

Today's news of employment gains should come as little surprise given recent strength in business investment. What we see today are just the latest fruits of the President's pro-growth tax cuts, which increased incentives for businesses to invest in new facilities, new technology, and other capital spending. Congress would do well to make the President's tax cuts permanent, so that businesses face less uncertainty in making such investments.

Tim Kane, Ph.D., is Research Fellow in the Center for Data Analysis, and Alison Acosta Fraser is Director of the Thomas A. Roe Institute for Economic Policy Studies, at The Heritage Foundation.