Jobs Picture, April 4, 2008
By Jared Bernstein
April 3, 2008

April 4, 2008

Recession takes hold in the job market

by Jared Bernstein with research assistance from James Lin

The nation's job market appears solidly in recession, as payrolls contracted for the third month in a row, and unemployment jumped up from 4.8% to 5.1%, the highest jobless rate since September 2005, according to the report released today by the Bureau of Labor Statistics. Payrolls were down by 80,000 in March, the largest loss in five years, while January and February's initially reported losses were revised downward by an additional 67,000 jobs.

Since employment peaked in December, payrolls have contracted by 232,000. Private sector payrolls were down 98,000 last month and 109,000 in February. Since hiring in the government sector is less susceptible to cyclical swings in the overall economy, private sector job patterns provide a clearer signal of the weakening labor market. Private sector jobs are down 300,000 from their peak in November.

Officials often date a recession as beginning at or near the payroll employment peak. Thus, there is a good chance that the recession will ultimately be recognized to have begun in December or January.

The increase in the unemployment rate is also important, particularly as regards the trend in labor force participation. In February, despite large job losses from the household survey, unemployment ticked down slightly because hundreds of thousands of people left the labor force (note that only those seeking jobs are counted as unemployed). Last month, in contrast, the labor force grew by over 400,000—monthly changes from this survey are notoriously volatile—and unemployment went up as new entrants, re-entrants, and job losers competed for fewer available jobs.

This last point regarding job losers is also a notable recessionary indicator (see chart). These laid-off job seekers were 53.7% of the unemployed last month, the highest share in four years.

For the fifth month in a row, fewer than half of industries have added jobs, demonstrating the pervasive nature of job loss. Construction employment fell both in residential and non-residential building and contracting, and unemployment in the industry has jumped from 9% to 12% over the past year. The loss of jobs in this sector is one likely factor behind the increase in Hispanic unemployment, up 0.7% last month, and 1.7 points over the past year (2.1 points for men).

Despite positive developments in the export sector related to the weakening dollar, factories continue to shed jobs, and the pace of losses has accelerated since last November. Last month's decline of 48,000 jobs was the biggest loss since October 2006. Moreover, the largest job losses have been in the durable goods sectors, including autos, a sector where jobs tend to be of higher quality in terms of wages and benefits relative to the non-durable sector (e.g., apparel, food).

The one sector that continues to steadily resist the recession forces is health care, which added 23,000 jobs last month and 363,000 over the past year. Health care services are generally considered to be "inelastically demanded," i.e., spending on health is non-discretionary, and there is also considerable demographic pressure as the population ages. Moreover, health-care spending can be publicly subsidized, as with Medicare, or paid for by insurance, so it is less susceptible to paycheck pressures.

Another reliable recession indicator is the slight tick down in the employment rate—the share of the population with jobs—in March. Over the past year, this rate is down 0.7%, from 63.3% to 62.6%. The decline in this highly cyclical indicator suggests weakening labor demand, but there is more to this employment rate story than just this cyclical development.

As EPI economist Josh Bivens points out in forthcoming work evaluating the last business cycle (assuming the cycle peaked in December), the employment rate actually fell over this cycle, by 1.6 percentage points (March 2001-December 2007). This is the first cycle on record marked by a decline in the employment rate. It is also a potent indicator of the weakness of labor demand over the cycle, and one reason why workers' bargaining power was never strong enough to create much real wage pressure during this period.

There is some evidence in today's report that the weakening job market is leading to slower wage growth. Hourly wages rose 3.6% over the past year, the slowest growth rate in two years, and well behind recent inflationary readings, which have been around 4%. As weekly hours have also slowed over the past year (though they ticked up last month)—another symptom of the downturn—weekly earnings are up only 3.3% over the past year, well behind inflation.

Thus, as the labor market appears clearly to have shifted into recessionary mode, working families are beset by a tough set of pressures. Jobs in general are less available, high-quality manufacturing jobs are fading fast, and competition by an expanding labor force for a shrinking pool of jobs is putting downward pressure on wage growth. Price pressures, especially in energy and food, continue to absorb more than the nominal wage gains.

Policy makers need to continue responding to these stressors. The stimulus checks will help but are unlikely to be enough to get the private sector economy back on track. A second package, one focused less on rebates (which are too likely to be used to pay off debt or to leak out as spending on imports, like gas) and more on direct assistance to the jobless through extended unemployment insurance benefits, should be crafted as soon as possible.

See also Reading the vital signs in the jobs report (EPI Issue Brief #243)

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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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