October 5, 2007
Job market healthier than thought, but still not out of woods
By Jared Bernstein with research assistance from James Lin
In a major revision of recent data, the U.S. labor market now appears considerably less weak than was previously feared, according to today’s report from the Bureau of Labor Statistics. Payrolls expanded by 110,000 in September, the strongest monthly gain since May. Of equal importance, last month’s reported loss of 4,000 jobs was revised upward to a gain of 89,000. Together, revisions for July and August added 118,000 jobs to the nation’s payrolls, a large upward revision.
Whereas last month’s employment report showed job growth at an average of about 45,000 over the prior three months, the revised data and today’s payroll result raise the three month average to 97,000, a much healthier rate of job growth.
Even with the upward revisions, however, job growth has slowed this year. The chart below shows both monthly changes in payrolls (bars) and year-over-year percent changes (line). Both show a deceleration in the rate of job growth, most clearly in the less volatile annual changes, reflecting the slowdown in the overall economy.
On a quarterly basis, the addition of 298,000 jobs in the third quarter of this year is the slowest quarter since payrolls bottomed out in 2003q3. However, with today’s revised information, the deceleration in job growth is considerably less worrisome than appeared to be the case last month.
The slower growth in jobs is leading the unemployment rate to slowly begin to rise. The jobless rate ticked up slightly to 4.7%, the highest rate since August 2006, and three-tenths higher than the 4.4% low reached last March. Unemployment grew most among African Americans, up to 8.1% from 7.7%.
While employment growth in the highly volatile household survey was up 463,000 last month—after falling 316,000 in August—strong labor force growth and an increase in unemployment among new job market entrants led to the uptick in joblessness.
The pattern of payroll job gains and losses across industries continues to be fairly consistent, with weak manufacturing and residential construction and strong gains in heath services. One important turnaround driving the upward revisions is the government sector, particularly local education. This sector recorded a 32,000 loss in the August report, revised up to a 39,000 gain in today’s report. This swing in 71,000 jobs in August explains most of the 93,000 upward revision for that month.
Manufacturing shed 18,000 jobs in September and is down 223,000 over the past year. Losses occurred throughout both durable and nondurable sub-sectors. Though the declining dollar has helped manufactured exports to expand markedly in recent months, these gains are not showing up in factory jobs.
The housing crunch is evident in job loss not only in residential construction—down 20,000 combining building and contracting—but also in related credit industries. Our index that combines all these sectors shows a 34,000 job loss in September and 77,000 over the past two months.
The business sector continues to expand, though about half as fast this year compared to last. Professional and technical services added 37,000 jobs last month, but firms continue to shed temporary workers, down 20,000 in September and 75,000 over the past year. This overall decline likely signals that employers are downsizing by letting temporary workers go while holding on to their core workforce.
Wages were up 4.1% relative to one year ago, a slight acceleration over recent annual changes of 3.9% for the prior two months. However, annual hourly wage gains have hovered in a range of 3.7% to 4.1% since January and show little evidence of acceleration that might lead to wage-push inflation.
Once a year, the Bureau of Labor Statistics 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 -297,000. This means that as of March 2007, there were this many fewer jobs than previously reported. The largest negative revisions occurred in manufacturing, a loss of 116,000 jobs in addition to the 230,000 lost factory jobs since March 2006.
In sum, today’s report presents a much less negative view of the job market than did last month’s report. However, there is clear evidence of a slowdown in job growth and the unemployment rate appears to be on a slowly raising trendline. Job and wage growth of this magnitude are consistent with an economy that is not falling into recession, but not growing at its full potential. If this diminished rate of job growth persists and unemployment continues to rise, wage and income growth will eventually slow down as well.
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