March 4, 2005
Payrolls expand nicely but unemployment rises
The nation’s employers expanded their payrolls by 262,000 in February, the strongest month of job growth since last October, according to today’s report from the Bureau of Labor Statistics (BLS). Unemployment, however, ticked up to 5.4%, due largely to reported job losses from the BLS survey of households, a more volatile source of monthly information.
The solid growth of February’s payrolls stands in contrast to the past three months, when employers added an average of 140,000 jobs per month. Employment expanded in most major sectors. After no employment gain in January, construction bounced back last month, adding 30,000 jobs. Retail trade also added 30,000 jobs, the sector’s best month since last April, reflecting higher-than-expected retail sales for February. Professional services expanded by 81,000, though the gains were largely in the lower end of sector, including administrative and temp services. Professional firms added 30,000 temp jobs, while employment in higher-end computer systems design and legal services was flat for the month.
Information services, another sector with above-average wages, continues to struggle. Employment in the industry, which includes publishing, telecom, and Internet services, peaked at 3.7 million in March 2001, the beginning of the last recession. After shedding jobs in all but nine of the ensuing 47 months, as of last month, employment in the sector stood at 3.1 million, down 600,000.
Manufacturing employment reversed a five-month negative trend, adding 20,000 jobs, due largely to a recall of laid-off auto workers. Average weekly hours worked in the nation’s factors were down by two-tenths of an hour, however, suggesting continued weakness in demand.
The household survey painted a less flattering picture of last month’s labor market. Though early reports attributed the rise in unemployment from 5.2% in January to 5.4% last month to an increase in the labor force, a more important factor was the survey’s reported loss of 97,000 jobs.
While the monthly employment fluctuations from the household survey are less reliable than the job counts from the payroll survey, other household information reveals continued slack in the job market. Labor force participation and employment rates provide two good indicators of how well the supply of labor is matching up with demand. Both measures are flat or have fallen in recent months, suggesting that the pace of job growth is still too slow to take up the slack left over from the jobless recovery.
The share of the population in the labor force was unchanged last month, though the labor force participation rate among women dropped two-tenths of a point to 59%. This is the same rate as December 2003, but prior to that point, the women’s rate had not hit such lows since June 1996. The share of the population employed also ticked down one-tenth to 62.3%, essentially unchanged over the past year (it was 62.2% last February), and down two full percentage points since March 2001.
Given the size of today’s population, that drop implies a decline of 4.5 million jobs since March 2001.
Unemployment rates rose for most groups of job seekers. For African Americans, the rate rose by 0.3 percentage points to 10.9%, the highest rate since October 2003. Taking a longer view, overall unemployment remains 1.1 points above its pre-recession level of 4.3% in March 2001, and is only down 0.2 points over the recovery that began in November of that year.
For African Americans, however, unemployment has gone up significantly over the recovery, by 1.1 percentage points. By this metric, this is a historically tough recovery for black job seekers. By this time in the last jobless recovery of the early 1990s, the black unemployment rate had fallen by 1.2 points.
Turning back to the payroll survey, both hourly wages and weekly earnings were flat last month, and are up 2.5% and 2.2%, respectively, over the same month last year. Both wage measures were well below inflation, which last clocked in at 3%, from January 2004 to January 2005.
Although these two different surveys cannot be expected to match up on a monthly basis, their information can be taken together to reveal an important dynamic in the current job market. Labor demand, as measured by net job growth from the payroll survey, was solid last month, as shown by the addition of 262,000 jobs. But labor supply continues to outpace demand, leading to higher unemployment and cyclically depressed rates of employment and labor force participation. This latter factor explains the weak wage growth we ve been observing, especially relative to the pace at which productivity is expanding.
What’s more, the fact that the Federal Reserve remains engaged in an campaign to raise interest rates means that job market activity is unlikely to accelerate in coming months. Thus, the mismatch between labor supply and demand will likely persist, sacrificing significant potential growth and contributing to the unbalanced character of the ongoing recovery.
By EPI senior economist Jared Bernstein, with research assistance by Yulia Fungard.
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