Economic Indicators | Wages, Incomes, and Wealth

Jobs Picture—January 9, 2004

January 9, 2004

Weak labor market results in second consecutive year of job loss

According to today’s report from the Bureau of Labor Statistics, the nation’s payrolls expanded by only 1,000 jobs last month, a marked deceleration from recent gains over the past five months. Unemployment fell from 5.9% in November to 5.7% in December, but this drop was wholly due to a contraction in the labor force, which declined by 309,000. That left the labor force participation rate at 66%, the lowest it has been since December 1991.

With December’s release, a full year of data is now available for 2003. The unemployment rate for the year was 6.0%, the highest annual jobless rate since 1994. Payrolls fell last year by 331,000 (-0.3%) and by 1.5 million (-1.1%) in 2002. The last time payrolls declined for two consecutive years was in 1944-45.

The very slight expansion in the December payrolls was the smallest gain since firms began gaining net jobs five months ago. Since August, payrolls have expanded at an average rate of 56,000 per month, far below what is needed to provide sufficient opportunities for job seekers. In historical terms, this is very weak job growth for the current stage of recovery, more than two years after than expansion began in November 2001. This far into the last recovery, an average of over 200,000 jobs were being added per month. Last month’s decline in the labor force was likely driven by this dramatic mismatch between job creation and the number of people who need jobs.

The labor force exodus has been particularly sharp for minorities, especially since the recovery began in November 2001. Since then, the overall drop in labor force participation has been 0.7 percentage points overall, and the same number for whites. But for African-Americans and Hispanics, the drop has been 1.4 and 1.6 percentage points, respectively. The employment rate for adult black woman dropped to 56.9%, the lowest rate since April 1996, and 2.1 percentage points below the rate when the recovery began. While the recession was fairly broad-based in terms of which groups were affected, the recovery has been demonstrably harder on minorities.

The persistence of weak job growth and high unemployment (relative to the 4% unemployment rate achieved in 2000) has slowed the growth of wages. On a year-over-year basis, wages grew 2%, about the rate of inflation. But over the fourth quarter, they grew at an annual rate of 1%, leading to diminished buying power among many in the workforce.

Adding to this slower wage growth is a decline in weekly hours worked last month, another sign of weak demand. In tandem with weak hourly wage growth, the decline in hours led to a $2 drop in weekly earnings.

The weak payroll number was driven by yet another monthly decline in factory jobs in combination with a slowdown in service hiring. Manufacturers shed 26,000 jobs, the 41st month of losses in that beleaguered sector. Note that these losses have occurred despite recent expectations driven by industry reports that the sector was gaining enough strength to begin adding workers. Since the recovery began, factory employment is down by 1.3 million.

In the services sector, retailers cut jobs by 38,000 (after adjusting for the usual December spike in seasonal hiring). Added to November’s job loss of 28,000, this has been a particularly weak hiring season for the nation’s retailers. Other weak sectors include financial activities, which contracted for the third straight month, and information services, which grew by only 5,000 jobs and remains 83,000 jobs below last December’s employment level.

Business service employment added the most jobs in December, expanding by 45,000. However, this was largely driven by an increase of 30,000 temporary hires, the eighth consecutive month of gains in the temp sector, and a further sign of employers’ reluctance to commit to permanent hires.

Various indicators of overall economic performance, such as gross domestic product or productivity growth, have been posting strong gains in recent months, but today’s report clearly reveals that these gains are not reflected in the labor market. Over the longer term, the past two years have been among the worst on record for payroll employment growth, and the lack of job creation is leading many to exit the labor market and cutting into the hours of work of those who remain employed. The persistence of these weak demand conditions have led to stagnant hourly and weekly wage trends that are falling behind inflation and thus eroding the living standards of working families. The fact that the labor market remains this weak more than two years into a recovery highlights the failure of economic policy to reach those sectors of the economy, specifically the job market, that matter most to working families.

Jared Bernstein
with research assistance by Yulia Fungard

For more information on December job and wage data, go to EPI’s new web feature

The Economic Policy Institute JOBS PICTURE is published each month upon release of the Bureau of Labor Statistics’ employment report.

EPI offers same-day analysis of income, price, employment, and other economic data released by U.S. government agencies. For more information, contact EPI at 202-775-8810.

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