November 7, 2003
Jobs on the rise, but lack of wage growth threatens long-term outlook
The nation’s payrolls expanded by 126,000 jobs last month, the best monthly job gain since January of this year, according to today’s report from the Bureau of Labor Statistics. Including the substantial revisions to recent months’ data, payrolls are up by 286,000 since July. This increase is the largest three-month gain since January 2001, a few months before the recession began. The steady gain in jobs stands in sharp contrast to the persistent losses in earlier months, and suggests that, after two years, the recovery may finally be generating job growth. Wage growth, however, remains a laggard that threatens to constrain the sustainability of the current positive trend.
The unemployment rate ticked down slightly, to 6.0%; with a decline of 0.14%, the unemployment rate only narrowly missed dropping down to 5.9%. Notably, the labor force expanded by 248,000, implying that the fall in unemployment was driven by job seekers finding work instead of leaving the labor market. As the labor market continues to improve, labor force growth is likely to accelerate, with the return of millions who gave up looking for work when job prospects were dim. This dynamic means we will need even faster job growth to lower the unemployment rate.
Job gains occurred in most industries, with the notable exception of manufacturing, which shed 24,000 jobs. Although recent declines in inventories and the improved trade balance in the third quarter probably helped reduce factory job cuts, this sector continues to lag the rest of the labor market.
Private service providers (services excluding government-two-thirds of total payroll employment) increased by 133,000 this month, building on last month’s gain of about the same number. Expansion in this sector is driven by solid gains in business services, health care, retail trade, and food services, the latter two reflecting strong consumption in the third quarter.
The information sector, on the other hand, lost 8,000 jobs, despite analysts’ hopes that recently renewed investment in information technology would lead to more hiring in technology jobs. Employment is this sector is down 280,000 since the recovery began in November 2001, representing an 8% loss in jobs, the same percentage decline as manufacturing. Financial services also lost jobs in October (-9,000), led by losses among firms engaged in mortgage refinancing. The inability to count on mortgage refinancing to boost income growth in future months as it did in the third quarter may prove to be an important leading indicator.
Another note of caution comes from recent wage trends, which have been essentially flat over the past two months. Hourly earnings are up just 2.4% over the past year, only slightly ahead of inflation, for the slowest yearly gain since August 1994. With the strengthening labor market, weekly hours expanded slightly last month, driving weekly earnings incrementally higher for a gain of 2.4% over the year. Akin to the decline in mortgage refinancing activity, the lack of wage growth is a potential constraint on the sustainability of recent positive trends in growth and jobs.
Unemployment showed little change for most groups in October, though the rate for adult black men fell from 11.2% to 10.5%; among black women, the rate increased sharply from 9.1% to 10.0%, the highest rate since May 1994. The jobless rate of black women now stands 4.5 percentage points higher than the low point of 5.5% reached in December 2000, an addition of almost 400,000 black women to the jobless rolls. On the other hand, Hispanic unemployment fell 0.3 percentage points to 7.2%, the lowest rate for this group since May of last year.
Today’s positive report begs the question: how sustainable are the significant job gains of the past two months? To the extent that the recent gains were fueled by the same one-time factors that drove consumption and growth in the third quarter-mainly mortgage refinancing and tax cuts-lack of wage growth is a serious concern. However, if employment gains grow strong enough to lower unemployment, the tightening labor market will boost wages as well. For that to happen, more jobs must be created than last month’s increase of 126,000; at least 150,000 per month are needed to keep pace with labor force growth, and considerably more if the millions who left the labor force soon return.
Despite recent growth, a deep jobs deficit still exists: payrolls remain 2.4 million below their pre-recessionary level, and two years into the recovery, unemployment remains two percentage points above its 2000 level. Nevertheless, the job gains shown in today’s report bring the labor market closer to closing that gap than it was a few months ago.
—Jared Bernstein
with research assistance by Yulia Fungard
For a detailed discussion of how faster job growth is necessary to lower the unemployment rate, see the EPI Briefing Paper Understanding the Severity of the Current Labor Slump, by EPI Research Director Lee Price.
The Economic Policy Institute JOBS PICTURE is published each month upon release of the Bureau of Labor Statistics’ employment report.
