June 4, 2004
Solid gains continue as job market hits “sweet spot”
The nation’s job market continued to expand impressively last month, with the Bureau of Labor Statistics (BLS) reporting that employers added 248,000 payroll jobs in May. This increase is in addition to upwardly revised gains of about 350,000 in both March and April. The average monthly gain over this period, 315,000 per month, is the best three-month gain since early 2000. Payrolls have grown consistently since last September, adding 1.4 million jobs, with two-thirds of this growth occurring over the last three months.
In another positive sign, job growth was once again robust over most industries, including manufacturing, which added 32,000 jobs. After contracting for three and a half years, manufacturing has added jobs in each of the past four months.
The unemployment rate, however, remained unmoved at 5.6%. Although job growth has been robust, the pace of labor force growth has accelerated as well, meaning more job openings are needed to absorb both the 8.2 million unemployed persons (up 39,000 in May) along with those entering the newly expanding labor market. An indicator of this challenge is the share of new entrants to the labor market who are seeking work, which rose to 8.7% this month, its highest level thus far in the recovery.
These new entrants to the job market caused the labor force grew by 233,000 in May for an increase of 503,000 since February, an average annual growth rate of 1.4%. In the year prior to this reversal, the labor force expanded at an average rate of only 0.4%. After falling steeply last year, the share of the population in the labor force has stabilized over the past few months. Employment has been growing more slowly in the household survey, and if the unemployment rate is to come down, it will take considerably faster household employment growth to employ those entering the work force.
The only major industry to cut net payrolls in May was the government sector, down 27,000, driven largely by the loss of 22,000 jobs in the federal government. Large gains were seen in construction (up 37,000), and professional services added 64,000, with about half of that gain coming from temporary help. Since February, temporary help has added 87,000 jobs, accounting for 9% of total job growth since then, a disproportionate share given that this industry accounted for 2% of total employment in May. The health care sector, which never faltered over the recession and jobless recovery, continued to expand, adding 36,000 jobs in May. Information services continues to grow slowly relative to the rest of the job market, up 3,000 in May.
With a solid job market recovery underway, it is useful to examine the industries that have been growing as a share of total employment and those that have been losing share. Most industries are now adding jobs, but some are doing so at a below-average pace and thus losing ground as a share of total employment. On average, the industries that are expanding as a share of total employment pay lower wages than those that account for a smaller share of the total.
Averaging over the past three months, and comparing this year to last year, industries expanding as a share of total employment pay on average 13% below industries contracting as a share. This is driven largely by the fact that even though industries such as manufacturing, information, and financial services are expanding again, they are growing more slowly than other low-paying sectors, such as hotels, restaurants, and temp jobs.
The mix of jobs by industry, along with the fact that slack remains in the labor market, has kept overall wage growth from rising quickly. Over the past year, hourly wages are up 2.2%, just about the rate of inflation.
Continued slack in the job market is evident in a number of indicators from today’s BLS report. First, even with the sharp gains of the past few months, payroll employment remains down 1.3% from its level at the end of the last business cycle in March 2001. The share of the unemployed out of work for at least half a year remains at recessionary levels: 21.9% in May, an increase of 0.5% from a year ago. The average spell of unemployment ticked up last month, from 19.7 to 20 weeks, meaning it is taking five months for the average unemployed worker to find a job. Finally, the number of part-time workers who would rather have full-time jobs rose by 91,000, and at 4.7 million, remains 55,000 over its level one year ago. This measure too is indicative of some problems with the quality of the available jobs.
Clearly, the overall expansion has solidly caught up with the job market. The economy appears to be in a “sweet spot,” where sustained gross domestic product (GDP) growth in the context of lower rates of productivity growth (relative to the first few years of the recovery) are leading even the most cautious employers to begin hiring again. However, these employment gains are coming late in the recovery, and labor market slack remains. Also, the quality of jobs in expanding sectors remains below that of jobs in contracting sectors. But if this sweet spot continues, these problems too will abate and the benefits of growth will begin to be more broadly shared.
By EPI senior economist Jared Bernstein
with research assistance by Yulia Fungard.
For more information on the most recent job and wage data, go to EPI’s web feature JobWatch.org.
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The Economic Policy Institute JOBS PICTURE is published each month upon release of the Bureau of Labor Statistics’ employment report.
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