July 3, 2008
Weekly paychecks take hit as job market deteriorates
by Jared Bernstein with research assistance from James Lin
The U.S. job market continues to weaken, as payroll contracted for the sixth straight month and unemployment remained at 5.5%, according to today’s jobs report from the Bureau of Labor Statistics. Weekly paychecks for most workers over the past year are up only 2.8%, well below the growth of inflation.
The number of jobs in America has now fallen every month this year, and is down 438,000 since it peaked last December. Also, in another sign of expanding weakness, the BLS revised employment counts down for April and May by 52,000 jobs. It also helps to look only at what is happening in the private sector. Since government jobs are less sensitive to the business cycle, private sector employment is a more telling indicator of the impact of market conditions. Having peaked in November of last year, non-government payrolls are down 578,000, including 91,000 in June.
The wage front
On a yearly basis, hourly wages of the bottom 80% of the workforce in blue-collar production or non-managerial service jobs grew 3.4%, the lowest yearly growth rate since January 2006. A year ago, this growth rate was 4.1%, solid evidence that the weak job market is placing downward pressure on workers’ wages.
Although workers’ weekly hours were unchanged last month, they are down over the past year. The combination of diminished weekly hours and slowing hourly wages resulted in a 2.8% growth in weekly paychecks over the past year, the lowest growth rate since September 2005. With annual inflation tracking upwards of 4%, this means falling real earnings and diminished buying power for workers’ paychecks.
These decelerating wage trends tilt sharply against any evidence that faster price growth is driving faster wage growth. Instead, the weak bargaining power of most workers means they are subject to pressures from three sides: declining jobs and hours, slower hourly wage growth, and faster price growth. This punishing combination is lowering their living standards and is surely behind the historically very low readings on consumer confidence.
Most industries shed jobs in June, with significant losses both in manufacturing and services. Professional services—jobs in the large office economy—contracted in five of the last six months, losing 51,000 jobs in June. The losses were driven by large declines in temporary work, a bellwether for recessionary conditions.
Construction jobs continued to slide, down 43,000 last month. With the implosion of the housing market, jobs for home builder and contractors have fallen sharply, down 345,000 over the past year. But spillover from this sector has led to declines in non-residential construction as well, and jobs here are down 58,000 over the past year.
Increased exports, driven partly by the declining dollar, have yet to show up as factory employment. Manufacturing jobs fell 33,000 in June, marking two straight years of consistent monthly job losses.
Health services, a sector that has continuously bucked the negative trend seen in other industries, continued to be a source of job growth in June, adding 15,000 jobs. This was, however, considerably fewer new jobs than the 31,000-per-month average since the beginning of the year.. This sector should be closely monitored sector in coming months to see if this downshift persists.
More weak indicators
Other indicators of job weakness from today’s report include:
- The underemployment rate—a more inclusive measure of labor market weakness than the unemployment rate—rose to 9.9%, driven up by the increase in part-time workers who would rather be full-timers. The number of these underutilized workers is up over one million over the past year (from 4.3 million to today’s 5.4 million).
- The share of unemployed workers jobless for at least half a year remains elevated into recessionary territory, at 18.4% last month. The typical, or median, unemployment spell rose to 10 weeks, the highest in four years.
- After its sharp spike up in May, most analysts expected the unemployment to fall back slightly in June. Teenage unemployment, which helped to drive May’s spike, did fall in June, but increases in the jobless rates of Hispanic workers (up very sharply by 0.8 percentage points) and adult men (0.2 points) kept the overall rate elevated at 5.5%.
- June’s 5.5% unemployment rate represents a 1.1 percentage point increase in the unemployment rate since March 2007, and an addition of 1.76 million to the unemployment rolls.
Today’s data for June also provide the first look at data for the second quarter of the year. Job loss for the quarter amounted to 215,000, the worst quarter since the second quarter of 2003. Hourly wages are up at a 3.2% annualized rate over the quarter. Aggregate hours worked for the quarter tend to be an early indicator for GDP growth. As the number of jobs declines and hours of work grow more slowly, aggregate income of working family stagnates, and this in turn constrains consumption growth (which is still 70% of our economy). On an annualized basis, total hours are down 0.9% in the second quarter, suggesting gross domestic product, even with the tax rebates in the system, was also well below its potential growth rate.
The bottom line
The job market is clearly in recessionary territory. Most industries are cutting jobs, unemployment and especially underemployment are elevated, and perhaps most importantly, wage growth is slowing quite sharply and is well behind inflation. Workers paychecks are under attack from three sides: diminished jobs and hours, slower hourly wage growth, and faster price growth. Moreover, most workers lack the bargaining power necessary to fend off these attacks.
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