Economic Indicators | Retirement

Jobs Picture: June 3, 2005

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June 3, 2005

May job growth unexpectedly weak

The nation’s payrolls expanded by 78,000 jobs in May, according to today’s report from the Bureau of Labor Statistics.  This disappointing outcome is about 100,000 jobs below forecasters’ expectations and is a sharp reversal from April’s job gains of 274,000. 

Averaging over April’s strong showing and May’s weak report yields a monthly growth of 176,000, close to the trend over the past year.  However, the abrupt downshift in May—in tandem with other weak indicators such as flat or falling hours in most industries, slow wage growth, continued losses in manufacturing, and the ongoing high levels of long-term unemployment—throws cold water on the hope that April’s report was the beginning of a new, accelerated growth pace. 

Today’s report also showed the unemployment rate ticking down slightly to 5.1%, the lowest level since September 2001.  Over the past year, the unemployment rate is down half a point, and the number of unemployed has fallen by over 500,000. 

The BLS survey of households, from which unemployment numbers are derived, has recorded much larger increases in employment growth over the past few months compared to the payroll survey.  The latter, however, is widely considered a more reliable source of monthly employment changes, as such changes in the household survey are notoriously volatile. 

Over the longer term, the two surveys are more in accord than they have been in the last few months.  The employment trough in the payroll survey was May 2003, and since then, job growth has averaged 147,000 per month.  That same figure for the household survey is 163,000.

The graph plots the monthly changes in payroll employment over the two-year period of job gains since May 2003.  What is revealing here is the “fits and starts” nature of job growth, where strong months are followed by weak ones.  While trend growth is creating enough jobs to sustain the recovery, this pattern suggests that a convincingly strong labor market recovery has yet to take hold. 

Monthly changes in payroll employment over last two years

In this regard, it is useful to benchmark recent trends to those in the last recovery.  The 1990s recovery was also initially “jobless” but by this point in the cycle was posting much better results.  Over the past year, payrolls have expanded by an average of 165,000 per month, a growth rate of 1.4%.  Over the same period in the last recovery, the average monthly gain was 316,000, and the growth rate was 3.2%, more than twice that of today.

In fact, today’s report marks the first month since the recession began in March 2001 (and ended in November of that year) that private-sector payrolls surpassed their pre-recession level (for more information, see JobWatch.org).  That is, it took an unprecedented 50 months for private-sector payrolls to regain their peak level at the end of the last business cycle.  Historically, it has taken an average of 23 months for this to occur.

A few sectors continue to reliably create jobs, especially health care and construction.  Professional services, a large and important sector that had been adding jobs steadily in recent months, shed 1,000 jobs last month.  Information services, another high-end sector, also reversed course and lost 8,000 jobs last month, its worst showing since last September. Temporary work, a source of growth earlier in the recovery, has been essentially flat since last November. 

After a brief period of monthly gains in the first half of last year, manufacturing employment has contracted in most months since (down 7,000 in May), and is now down 48,000 jobs over the past year.  A positive note here is that these losses have been concentrated in lower-end, non-durable manufacturing, down 82,000 since last May, while durable manufacturing employment is up 34,000 over the year.

With the exception of the employment numbers noted above, most measures of labor market conditions from the household survey were unchanged or slightly improved in May.  African American unemployment fell from 10.4% in April to 10.1% in May, and black employment rates, which have been particularly low, ticked up by half a percentage point.  Still, the decline in the share of blacks at work remains a significant problem.  For example, while the employment rate for white women is down 1.4 points since the March 2001 peak, the decline for black women is twice that: 3.0 points.

The slack remaining in the job market continues to hold back the rate of hourly wage growth among blue-collar and non-managerial workers.  The growth in hourly wages over the past year was 2.6%, well below inflation, which has been running in the mid-threes (e.g., 3.5%, April 2004-April 2005). 

Other recent reports have stressed significant increases in labor income, a trend that seemingly contradicts the sluggish growth of workers’ hourly wages.  These differences are explainable, however, considering that:

  • The growth of aggregate labor income is being fueled more by employment gains than by hourly wages.
  • The growth in labor income is being driven more by fringe benefit costs (health care and pensions, for example) than by wages, which means that workers without those fringes—and nearly half do not have employer-provided insurance—are losing the most ground.
  • Most of the gains in labor income appear to be accruing to those at the top of the compensation scale.

Underlying the jagged nature of monthly job growth over recent months is employers’ unwillingness to shed their caution regarding the strength of the recovery.  Employers, along with other key economic actors (e.g., investors), have been reluctant to build up the necessary “animal spirits” or optimistic expectations that would lead to more consistently strong monthly job reports.  As long as their spirits remain dampened, it will take longer to wring the slack out of the job market left over from the jobless recovery.  If so, from the perspective of many working families, this expansion will remain an unbalanced one.

Today’s report was written by EPI economist Jared Bernstein, with research assistance from Yulia Fungard.

For more information on the most recent job and wage data, go to EPI’s Web feature JobWatch.org.

To view archived editions of JOBS PICTURE, click here.

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.


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