August 6, 2004
Job growth falls far short of expectations
Job growth came in well below expectations in July, as the nation’s payrolls expanded by only 32,000 according to today’s report from the Bureau of Labor Statistics (BLS). This was the worst month for job growth since last December. In addition, BLS revisions show that firms added 34,000 fewer jobs in June than had earlier been reported. Thus, over the last two months, job growth averaged 55,000 per month, way off the growth pace earlier this year, when monthly employment growth averaged 225,000.
Unemployment, on the other hand, ticked down in June, from 5.6% to 5.5%, driven by very strong employment gains in the household survey. However, as underscored by the BLS commissioner in a statement this morning (August 6), the household survey is a less reliable indicator of monthly employment changes and is widely considered to provide a less accurate “signal” of short-term changes in job growth (the household survey is discussed in more detail below).
The weak job market continues to place downward pressure on wage growth. Compared to last year, hourly wages of blue-collar workers in manufacturing and non-managers in services were up 1.9% in July. Since April, this indicator has fallen by 0.1% per month, from 2.2% to 1.9%. Moreover, while nominal wage growth has decelerated, inflation has been accelerating, growing from about 2% to 3% thus far this year (e.g., on an annual basis, inflation grew 2% in January and 3.2% in June; July’s inflation rate will be released later this month). Unless inflation falls sharply in July—and rising oil prices make this highly unlikely—real wages will continue to decline on an annual basis.
These job and wage dynamics erode workers’ buying power, and this has negative implications for the strength of the recovery. As monetary and fiscal stimuli leave the system, a “three-cylinder” approach is needed to replace the lost stimulus with labor market income: jobs, hours, and real wages. That is, in order to replace the stimulative boost from low interest rates and tax cuts, the economy needs to generate more jobs, more hours per week, and higher hourly pay. If any one of these factors is weak, the others need to be that much stronger. For example, rising hourly wages can help boost incomes, even if a less-than-desirable number of jobs are added.
In the past two months, however, job and wage growth have both been weakening, and weekly hours remain well below their pre-recession levels (weekly hours of private-sector production, non-supervisory workers averaged 34.3 in 2000 compared to 33.7 so far this year). With all cylinders faltering, consumption growth was predictably diminished in the second quarter of 2004, up 1% as opposed to 4.1% in the first quarter. Retailers are also reporting weaker than expected sales in July, and retail employment fell 19,000 for its first loss this year.
Services added only 14,000 jobs in July, the worst month for this broad sector since last August. Within services, the only sectors with significant growth were health (up 20,000) and professional services (up 42,000). Unlike prior months, growth in professional services was not driven largely by temporary hires, although two-thirds of the growth was in lower-end (i.e., administrative) services within the professional category.
Manufacturing, however, was a bright spot this month, with employment up 10,000. Since January, the nation’s factories have added 91,000 jobs, with most of these additions in the higher-wage durable manufacturing sector.
The household survey revealed lower unemployment rates for most groups in July, with the notable exception of African Americans, whose rate went up 0.8 percentage points, from 10.1% to 10.9%, the highest level since October of last year. Most other indicators showed improvement in the household survey, including fewer involuntary part-time workers and a smaller share of long-term unemployed (though, at 20.4%, the share of those jobless for at least six months remains at recessionary levels).
Especially given the political season underway, the fact that employment grew by over 600,000 in the household survey will surely be touted by those seeking to quell concerns about the weak job market. Today’s statement by the BLS commissioner cautions against this approach. She notes that the “household survey is not designed to optimize the measurement of month-to-month employment change” and stresses the advantages of the payroll survey for such estimates.
One of the key advantages of the payroll survey for monthly changes is its large sample size relative to the household survey, which leads to less volatile monthly swings. Certainly, the household survey’s job gain of over 600,000 is an outlier likely related to the inherent volatility of this survey. In fact, the BLS points out that, over the past ten years, there have been 15 months (including this July) when the monthly change was “nearly 600,000 or more.” The payroll survey, however, showed only one month with job gains greater than 500,000 during that period, a unique change which the BLS ascribes to “an unusual weather event.”
While partisans may cherry-pick their preferred data source, the fact remains that the labor market has yet to settle into an employment trend strong enough to absorb the substantial labor slack left over from the recession and its aftermath. Under these conditions, the growth that has occurred is less likely to flow to working families, as noted above in the discussion of recent wage trends. This, in turn, prevents a return to the “wage-led demand growth” that prevailed in the latter 1990s, when employers hired aggressively to meet broad-based consumption growth. This dynamic helped spur full-employment conditions, ensuring that growth was broadly shared throughout the income scale and generating a uniquely strong and sustainable recovery. Such a recovery remains elusive thus far.
By EPI senior economist Jared Bernstein
with research assistance by Yulia Fungard.
Source: Statements by BLS commissioner Kathleen P. Utgoff appeared in the August 6 report from the Bureau of Labor Statistics (www.bls.gov).
For more information on the most recent job and wage data, go to EPI’s web feature JobWatch.org.
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