September 1, 2006
The slower job growth regime marches onward
by Jared Bernstein with research assistance from Yulia Fungard
Employment continued to grow at a moderate pace last month, as payrolls expanded by 128,000 overall, and 111,000 in the private sector, according to today’s report from the Bureau of Labor Statistics. Average hours worked per week also fell slightly, while the unemployment rate was essentially unchanged, down a statistically insignificant one-tenth of a point to 4.7%.
Over the past five months, job market activity has slowed in tandem with the rest of economy, as higher interest rates, energy costs, and now the slumping housing market have dampened hiring. The monthly growth in payrolls since April has averaged 119,000, well off the pace of the 206,000 of the prior five months.
Excluding government employment from the analysis provides a clearer look at labor demand generated by the private sector. As shown in the chart below, which compares the last five months to the prior five, monthly job growth has slowed by about half.
As for another sign of weakening demand, average hours worked fell back slightly last month, both for weekly hours and for total hours worked by the private, non-supervisory workforce. The average workweek fell by one-tenth of an hour, as most industries cut back on weekly hours. Professional services, an important bellwether of service-sector strength, cut the workweek by 0.3 tenths of an hour.
Total hours worked, a measure of aggregate demand, fell by 0.2%, the largest decline in a year. Slower job growth and flat weekly hours in recent months is showing up clearly in this series: on a quarterly basis, total hours worked are up at an annual rate of 1.2%, the slowest growth rate in over a year (excluding the months affected by Hurricane Katrina).
The recent indicators of sharp weakening in the residential housing market make it a sector worth extra scrutiny. After falling by 17,000 over the prior three months, jobs in this area (residential building, contractors, real estate, and mortgage brokers) rose by 10,000 last month, including 4,000 added jobs in home building. Still, over the year thus far, these industries have contributed 5% of private sector job growth, compared to 17% in 2005.
Factory payrolls slid by 11,000 last month, following a 23,000 job loss in July. Though the manufacturing sector has had a few positive months lately, the level of manufacturing employment—14.2 million—is 2.7 million below its level at the peak on the last business cycle in March 2001.
The long employment slide in this key sector is also evident in the hourly wage trends of blue-collar workers. Despite the fact that manufacturing productivity has soared since 2000, up 29%, wage growth has slowed sharply. The chart below shows annual nominal wage changes for production workers in manufacturing since 2000. Over the past year, wages for these workers are up 1%, far behind inflation, and the slowest annual growth rate since the 1940s.
Sectors adding jobs included some of the reliable contributors in recent years: education and health services, up 60,000, and higher-end services—financial and professional businesses—added 10,000 and 26,000 jobs, respectively.
While the payroll data showed numerous areas of weakness, the household survey had some bright spots. African American unemployment fell to 8.8%, the lowest rate since July 2001 (note, however, that monthly changes tend to be volatile for this series). The unemployment rate for college-educated workers fell to 1.8%, the lowest rate since February 2001 (their employment rates rose as well, suggesting a “true” decline in unemployment—not one driven by jobseekers leaving the labor force).
Unemployment durations, however, remain high, as historically large shares of the unemployed have been jobless for much longer than the low unemployment rate would lead one to expect. Last month, 18.4% of the 7.1 million unemployed were jobless for at least half-a-year. Historically, when unemployment has been between 4.5% and 5.5%, the average long-term jobless share has been 11.7%; in this recovery, when unemployment has been within those bounds, the long-term jobless rate has been 19.5%. With net job creation weakening, it may be difficult to bring this rate down.
Hourly wage growth was weak in August, up only 0.1%, well below July’s gain of 0.5%. Over the past year, however, nominal wage growth was 3.9%, the same as the prior two months, and slightly below recent inflation readings (up 4.1% from July 2005 to July 2006). As the economy and the job market slow, this could be the plateau level of wage growth, meaning workers will only see real hourly wage gains in this recovery if inflation slows but wage growth does not.
In this climate, the only way for workers to get ahead is to work more hours, but as noted above, hours fell last month, leading to a $1.00 loss in weekly earnings. On a yearly basis, though, weekly earnings are up 4.2%, just above recent price growth.
Today’s report adds another data point to the emerging trend of slower job growth, reflecting the moderation in growth in the overall economy. This development should assuage the anxieties of those worried about inflationary pressures from the labor market. On the other end of the spectrum, for those worried about recession, today’s report brings comfort in terms of a possible “soft-landing:” 128,000 jobs is not a great number, but it’s not recessionary.
In the end, the group who might view this trend as a disappointment is the tens of millions of workers whose living standards have yet to reflect much gain at all from this recovery. If this slower job growth regime persists, it is unlikely that their bargaining clout will improve to the point where they have a chance to claim their fair share of the growth they have been instrumental in creating.
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