October 6, 2006
Slowing economy generates fewer jobs
by Jared Bernstein with research assistance from Rob Gray
The nation’s rate of job growth downshifted sharply last month, as employers added only 51,000 jobs, according to today’s report from the Bureau of Labor Statistics (BLS). This marks the lowest month for net job gains since the Gulf Coast hurricanes disrupted the labor market last fall. Even with a large upward revision to August’s job gains (188,000—60,000 more jobs than first reported), the average monthly gain this year has been 137,000, below last year’s monthly rate of 165,000.
The unemployment rate ticked down to 4.6%, though the change was statistically insignificant. Employment in the household survey, which often moves quite differently than the payroll data noted above, jumped by 271,000. Here again, however, the Bureau reported that gains from this survey need to surpass 414,000 to indicate, with statistical certainty, that job growth was positive (the smaller sample and greater volatility from this survey leads to this large “confidence interval”).
The slower job growth, which occurred across most industries, appears to be linked to diminished economic activity in a number of sectors across the economy. Most notably, the slumping housing market, once a stalwart contributor to monthly gains, is generating far fewer jobs now. Last month, residential construction was up slightly (2,000), but residential contractors shed 17,500 jobs. Adding employment in two related industries—real estate and jobs associated with mortgage brokering—creates the index plotted in the figure below. The flattening trend is unmistakable. Last year these industries added 321,000 jobs; thus far this year, they’ve added 6,000.
Business construction, on the other hand, has been picking up some of the slack, as non-residential contractors added 17,200 jobs in September. Over the past year, residential contractor employment is unchanged, while the non-residential side of the business is up 120,000.
Other weakening sectors include manufacturing, which suffered the third consecutive month of employment losses, down 19,000 last month. Among blue-collar workers, the loss was 30,000, the biggest loss since July of 2003. Persistent and growing trade deficits continue to drive losses in the industry, both in terms of the absolute number of jobs and the manufacturing’s share of total employment. In August, that share hit 10%, the lowest on record going back to the late 1930s.
Retail trade also continues to struggle, despite hopes that lower gas prices and improving retail sales might help boost employment in the sector, but retailers shed 12,000 jobs last month, and slightly over 100,000 over the past year.
Two other indicators of slowing demand in the job market come from the hours’ data. Average weekly hours were flat last month and have moved little this year. Combining the stagnation in weekly hours with the slowing rate of job growth, the BLS’s index of total hours worked by private sector, non-managerial workers fell in both August and September.
This measure of aggregate hours provides a first glance at the strength of the macro-economy in the third quarter of the year. On an annualized basis, total hours are up 0.9% in 2006q3 compared to the previous quarter, by far the slowest growth rate in three years.
Hourly wage growth was up 4% on a yearly basis, tying September with August for the fastest nominal growth rate since June 2001. While inflation has consistently surpassed even these accelerated gains in recent months (measured on a year-over-year basis), the real hourly wage is flat or down 26 out of the last 29 months. Yet, assuming falling energy prices do not reverse course, nominal gains of this magnitude will surely translate into real gains in coming months.
The household survey presented some mixed indicators in September. As noted, the unemployment rate was essentially unchanged, as were the employment and labor participation rates. The employment rate remains 1.2 percentage points below its level at the peak of the last business cycle; the rate for African Americans, which fell 0.9 points last month (and can be a volatile indicator), is down 2.9 points from the peak. If the job market remains stuck in low gear, it is unlikely that these important indicators of the strength of demand for workers will return to the levels associated with the last business cycle, a period when the tighter job market ensured a more equitable distribution of growth.
A very interesting exception to this pattern is among high school dropouts, a group that is widely considered to be highly disadvantaged in today’s job market. Among all education groups, drop-outs are the only group whose employment rates are up since the last peak (up 1.7 points, while college-educated workers are down 1.5 points). The unemployment rate among drop-outs fell to 6.4% last month, their lowest rate since December of 2000.
This is, of course, not meant to imply that more highly educated workers would be well advised to shed their degrees. But it does show that the structure of current labor market demand is not clearly tilted against the least skilled, i.e., the economy is not solely creating high-wage, high-tech jobs, but also creating low-end jobs.
Looking forward, today’s report confirms that the slowdown in the overall economy is solidly embedded in the job market. Looking backward, however, today’s report had an important piece of good news. Once a year, the Bureau “benchmarks” the establishment data to reflect a more accurate count of the number of jobs in the labor market. The preliminary revision, announced today, was larger than usual: up 810,000. This means that as of March 2006, there were this many more jobs than previously reported, and that employment grew more quickly between March 2005 and March 2006.
The fact that wage growth is soon likely to beat inflation is also good news, though in a recovery that appears to be in late middle-age at best (and one characterized by very positive productivity growth), the many workers who have been heretofore left behind have a right to claim: too little, too late.
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