Economic Indicators | Economic Growth

Unemployment up again as labor market conditions continue to decline

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May 2, 2003

Unemployment up again as labor market conditions continue to decline

Unemployment jumped to 6.0% in April 2003, and average hours worked per week staged the largest drop since 1983, as labor market conditions continued to deteriorate, according to today’s report from the Bureau of Labor Statistics. Private sector payrolls continued to slide, dropping 80,000 last month, 538,000 thus far this year, and 2.7 million since the recession began in March 2001. The nation’s factories shed 95,000 jobs in April, the largest one-month loss since January 2002.

The unemployed numbered 8.8 million last month, up more than 3 million since the unemployment level bottomed out in October 2000. Last month’s increase in unemployment was partially driven by an increase in the number of those entering the workforce, as the labor force participation rate edged up from 66.2% to 66.4%. Since one factor holding back the growth of unemployment in recent months has been the slow growth of the labor force, a reversal of this trend could lead to higher unemployment rates in coming months as more persons compete for fewer jobs.

Participation rates for college-educated workers, however, fell last month to 78.1%, the lowest level thus far in the downturn (the same rate prevailed last August), emphasizing that, along with blue-collar manufacturing workers, white-collar workers are also experiencing labor market difficulties.

The extent of joblessness is also evident in the continued lengthening of unemployment spells. The share of those unemployed for at least half a year rose 0.4 percentage points to 21.8%. With the exception of January 2003 (19.8%), this share has been above 20% since last October, a clear indication of lack of job opportunities. The average unemployment spell jumped from 18 weeks in March to 19.6 weeks in April, the longest average length since January 1984.

It is important to note that the unemployment rate does not include some workers who are “under-employed,” such as those part-timers who want a full-time job but can’t find one. That group grew by 144,000 last month to its highest level-4.8 million-since the recession began. Since its low point in October 2000, involuntary part-time work is up by 52%.

Another important indicator of weak labor demand is the sharp decline in average weekly hours worked in the private sector, from 34.3 to 34 hours, the lowest level in the history of this series, which dates back to 1964 (the labor market also hit this low in July 2002 and October 2001). The decline in weekly work hours was widespread, dropping in every major industry, though the largest decline (-0.5) was among goods producers.

The combination of fewer average hours and less employment also lowered the BLS measure of aggregate hours worked to its lowest level thus far since the recession began in March 2001; the index for manufacturing is at its lowest level since the series began in 1947. This measure is one of the first indicators of second quarter growth and suggests that the economy is unlikely to expand much faster in this quarter than last quarter’s 1.6% GDP growth rate.

Hourly wage rates of production workers in manufacturing and for non-supervisors in the service sector continue to grow at an annual rate of about 3.0% per year, a percentage point below their growth rate in 2001. This slowing of hourly wage growth, in tandem with the decline in hours, slowed the annual growth of weekly earnings to 2.5% in April from 3.4% in March. With inflation running at around 3%, this suggests real weekly earnings losses for this group of workers.

Sectoral job losses were concentrated throughout manufacturing, and services added only 21,000 jobs to partially offset the factory layoffs. Retail trade employment contracted for a third month in a row, though losses in April (-10,000) were lower than those in February and March. Driven by weak consumer demand (as seen in the first quarter GDP report), retail has now cut jobs in 17 out of the last 22 months. Job losses in transportation and travel-related industries, such as hotels, also reflect continuing weak consumer demand. An unexpected positive development was the 35,000 added jobs in local government, more than offsetting the 25,000 decline in that sector the month before.

Though overall economic growth has been positive, it is clearly too slow to reverse the job losses that have persisted since the recession began over two years ago. The fall in hours throughout the economy is indicative of levels of demand that are not only weak, but are becoming weaker each month. The lack of jobs is also generating slower wage growth and a growing long-term unemployment problem, both factors that are likely to lower family income and further constrain growth in coming months. Policy makers can address these problems by quickly passing an immediate but temporary stimulus package as well as another extension of unemployment insurance benefits, as the current extension expires at the end of this month.

Jared Bernstein
with research assistance by Brendan Hill

The Economic Policy Institute JOBS PICTURE is published each month upon release of the Bureau of Labor Statistics’ employment report.