November 4, 2005

October sees weak job growth throughout the land

According to today’s report from the Bureau of Labor Statistics (BLS), the nation’s payrolls grew by 56,000 jobs in October, as employers throughout the country—not just in hurricane-affected areas—reduced their hiring pace.  The unemployment rate edged down slightly to 5.0%.

Before Hurricanes Katrina and Rita, employers were adding an average of 195,000 jobs per month, and the previous report (September) revealed that pace to be ongoing outside of the Gulf Coast, where the hurricanes have led to significant business closures and job losses.  This month, however, the BLS reported that October’s weak job growth “was not attributable to the areas directly affected by Katrina.”  The BLS also notes that Hurricane Rita had little effect on this month’s results (the impact of Hurricane Wilma is not reflected in today’s report).

Simply put, job growth slowed throughout the country last month.  While this slowdown was not directly a function of hurricane-induced job losses, it could be indirectly related.  For example, by leading to higher energy prices, the hurricanes have contributed to the recent decline in real earnings, which could in turn dampen economic activity and hiring.

Hiring in most industries was stagnant in October.  Private-sector service employment, which accounts for two-thirds of the job market, fell slightly, with jobs losses at hotels and restaurants, retailers, and information-service providers (largely in motion pictures and sound recording).  These losses may reflect the fact that consumers facing high energy prices and falling real wages are cutting back on discretionary spending.  However, retail sales results at department stores for October show fairly robust spending, and consumption growth in the recent gross domestic product report (2005q3) was also solid, so there is some conflicting data here.

Manufacturing reversed its recent slide, adding 12,000 jobs in October, but this was due to the return of striking aerospace equipment producers.  Removing the effect of the striking workers from consideration reveals continued losses in the factory sector.   Thus far over this economic recovery, manufacturing is down 1.6 million jobs, or 10%, since November 2001.  Historically, manufacturing employment has grown by 7.5% over recoveries that lasted at least as long as this one.

A bright spot in today’s report is the increase in hourly wages, up eight cents, or 0.5%, the largest one-month gain since February 2003.  Over the year, hourly wages are up 2.9%, an acceleration over recent yearly growth rates but still behind consumer inflation, which rose 4.7% in the latest annual reading.  In keeping with weak labor demand across the industries, weekly hours were unchanged in October.

Is there evidence in today’s report of a sustained increase in labor costs leading to potential inflationary pressures?  The accompanying figure shows that the annual growth rate of nominal hourly wages is higher now than at the end of 2004, but three factors must be noted:  (1) there is little evidence of acceleration this year; (2) recent gains have yet to replace ground lost in 2003; and (3) wage gains of this magnitude can be handily absorbed in productivity, which grew at an average rate of 3.1% over the first three quarters of this year. 

Relative to the payroll data, the household survey contained a few more positive signs of labor market health.  The unemployment rate ticked down slightly, and employment rates, though still below pre-recession levels, improved for minorities.  Unemployment fell for African Americans to 9.1%, their lowest jobless rate since September 2001—a trend driven largely by job gains among black women. 

A drop in the number of part-time workers who would rather have full-time jobs helped send the under employment rate down to 8.7%, its lowest level since August 2001.

Long-term unemployment, however, still remains a problem.  In October almost 20% of the unemployed were jobless for at least half-a-year, an unusually high level given the low unemployment rate.  Historically, when unemployment is between 5.0% and 5.5%, this share has averaged 12.2%.  Over the past year when unemployment has been in this range, the long-term average has been 20.2%, meaning 8% more of the unemployed are long-termers than would be expected given historical patterns.

The BLS also released some the results of special survey questions they have initiated that tracks the labor market experience of Gulf Coast evacuees.  Since this is a household survey, it misses those evacuees in hotels and shelters, but it still yields useful insights into the very tough conditions facing these persons.  The Bureau found 800,000 evacuees in October, of whom 500,000 have yet to return to their homes.  Their overall unemployment rate is a staggering 24.5%; for those who remain away from home, the jobless rate is 33.4%.  Those who have returned home have a much lower rate of 10.5%. 

These findings strongly suggest a necessary policy intervention that would significantly boost the job prospects of those evacuees who want to return home.  Given that many of those who left the affected areas have low incomes and little savings, they need to get back to work as soon as possible.  Congress therefore should quickly craft and implement policies to help these displaced persons find transportation, housing, and work.

In sum, today’s report raises the concern that indirect effects from the hurricanes have at least temporarily reduced the pace of monthly job growth.  While it is too soon to evaluate this possibility, it warrants close observation, because job growth in this expansion still remains far behind the historical record.  Averaging over recoveries that have lasted at least as long as the current one (47 months), historically payrolls were up 11.9% at this point.  In the current recovery, employment is up only 2.4%.  In other words, just shy of four years into an expansion, the great American job machine has yet to shift into high gear.

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

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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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