May 6, 2005
Strong, broad-based job growth surpasses expectations
In contrast to the recent spate of disappointing reports on the economy, last month’s job market performance was surprisingly upbeat. According to the report from the Bureau of Labor Statistics, employment grew by 274,000, easily beating forecasters’ expectations of gains of around 170,000. Furthermore, job gains for February and March were revised up by a combined amount of 93,000.
With these additions, the average monthly growth of payrolls over the past year has been 181,000. While this rate of job growth is less robust than that of past recoveries—monthly employment growth over a comparable period in the last recovery was over 300,000—it is at least strong enough, in the sense of job and income creation, to sustain the ongoing economic expansion.
In another positive sign, job growth was widespread across most industries. Excepting the nation’s factories, most sectors posted strong gains (one measure of how many industries were expanding, the 12-month diffusion index, posted its highest level since October 2000). Information services, a sector that has been depressed since the bursting of the tech bubble back in 2000, added 12,000 jobs, its best month since December 2000. Despite weakening growth in sales, retailers added 24,000 jobs in April. Professional services, a large sector representing business employment, added 36,000, though 10,500 of those jobs were in the low-end temp help sector.
Turning to the goods producing sector, construction continues to respond to the ongoing demand for new housing. The sector added 47,000 jobs in April, and is up 6.2% over the recovery compared to 1.8% for the overall economy. Manufacturing hiring, however, remains in the doldrums, down 6,000 last month and down 15,000 compared to one year ago. Since last June, manufacturing has added jobs in only two months, a stark indicator of the continued downward pressure of trade deficits on jobs in that sector.
Turning to the household survey, the jobless rate held steady at 5.2%, as the large growth of jobs in this survey (from which the BLS measures unemployment) was met by equally large growth in the labor force. This nudged up the labor force participation rate—the share of the working-age population either at work or actively looking for a job—from 65.8%, where it had been stuck for three months, to 66%.
While the participation rate remains well below its pre-recession peak, labor force growth has accelerated in recent months. Thus far this year, the labor force has grown at an annual rate of 1.1%, compared to 0.4% over the comparable period last year. If this trend continues, it will support the notion that the recent weakness in labor force growth was due to the perceived lack of opportunities by potential job seekers.
The unemployment data also reveal an ongoing weakness in the job market: continued high levels of long-term unemployment. The share of jobseekers looking for work for at least half a year has been above 20% since October 2002, and the average spell of unemployment—19.6 weeks—remains far higher than would be expected given the low unemployment rate. One reason for this anomaly is that the long-term unemployed are older and more highly educated than in the past, and it takes longer for these more experienced job seekers to find acceptable employment opportunities.
While hourly wages grew at a similar pace as in recent months—up 2.7% over the past year—weekly earnings got a 0.2 tenths of an hour bump up to 33.9 hours per week, the highest level of weekly hours since September 2002. This pushed weekly earnings up 3.3% over the past year, slightly above the latest inflation readings, which have been around 3% per year. These represent the first real weekly earnings gains for production, non-managerial workers in recent months.
Today’s report begs the question: which of the recent months’ labor market performances represent the real underlying trend in job growth. Last month’s gain of 274,000 and February’s gain of 300,000 suggest a very positive trend, one that does not fit well with the “soft patch” evidenced in other recent economic reports. Gains posted in the surrounding months, however, suggest a weaker trend.
At this point, the average growth over the past year of 181,000 is probably a good, middle-ground estimator of the underlying strength of job growth. This rate of growth should keep unemployment from rising, but if it persists at only this level, then it will still take many months to absorb the slack left over from the jobless recovery and to bring down long-term unemployment. On the other hand, if job gains in future months continue to be above 250,000, the job market will tighten much more quickly, helping to ensure that the broad working class can begin to benefit from the economy’s growth.
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.
EPI offers same-day analysis of income, price, employment, and other economic data released by U.S. government agencies. For more information, contact EPI at 202-775-8810.