Economic Indicators | Wages, Incomes, and Wealth

Jobs Picture: August 5, 2005

August 5, 2005

Labor market improving at healthy pace, though manufacturing sector continues to lag

The nation’s employers picked up their hiring pace last month, as payrolls expanded by 207,000 jobs, according to today’s payroll report from the Bureau of Labor Statistics (BLS).  Even with upward revisions of 42,000 for May and June (cumulative), July’s job gains represent a significant improvement over these earlier months.  Though the recent pattern of job gains has been fairly volatile, with strong months followed by weak months, the average monthly growth rate over the year thus far is 191,000, a pace consistent with the Federal Reserve’s assessment of the job market as “gradually improving.”

Other positive signs from today’s report indicate that July was the best month for hiring in retail trade since April 2000 (up 50,000), and solid monthly wage gains of 0.4%.  Hiring also continues to be widespread across industries, a good sign that the recovery is starting to reliably reach most corners of the economy.  As discussed below, manufacturing continues to be an important exception to this pattern.  Information services, an important sector for high-tech jobs, also continue to lag the rest of the labor market.

Unemployment was unchanged at 5.0%.  However, today’s report shows some improvement in two key indicators that have heretofore shown relatively high levels of slack in the job market: the share of the population in the labor force (employed and unemployed) and the share actually working (i.e., employment rates).  Employment rates, for example, ticked up slightly for most groups and grew most quickly for African American men and high school dropouts, suggesting some improvement in job opportunities for less-advantaged workers. 

In this regard, a longer term view of employment rate trends by education yields an important insight into employers’ skill demands over the business cycle.  Numerous policy makers, including Federal Reserve chairman Alan Greenspan, have attributed the recent slump in employment to a mismatch between the skills of the U.S. workforce and the needs of employers.  If so, this would imply that the least skilled would have lost the most ground in terms of employment rates and that college-graduate employment rates would have grown the fastest.  In fact, since the last economic peak in March 2001, the only group whose employment rates have grown are the least-educated workers—those who failed to complete high school—which are up by 2.7 percentage points (compared to the overall rate, which is still down by 1.5 points).  The share of high school graduates employed remains down by 1.5 points, the share with some college but no degree is down 2.9 points, and the share with college degrees is down 1.8 points. 

These numbers clearly belie a simple skills mismatch story in the current labor market.  More likely, demand has been too weak in sectors that employ skilled workers, such as information technology.  For example, while overall payrolls are up 2.2% over the recovery, employment in telecom and Internet service providing industries is down 18% and 16%, respectively. (See August’s JobWatch for further analysis of the trend in IT-industry employment.)

As noted, most industries added jobs in July.  Though consumer spending in retail has been fairly strong, prior to last month this hadn’t translated into retail jobs.  July’s retail gains, along with 30,000 new jobs added in restaurants, suggest that this pattern may change as employers have to add workers to meet expanding demand.  Another indication of the strength of the jobs expansion, though a paradoxical one, is the recent lagging of temporary help employment, which fell slightly last month and has changed little since April. Earlier in the recovery, when this sector was expanding faster than average, economists hypothesized that employers, hesitant to commit to permanent hires, were using temp hiring to “test the waters.”  In that regard, the recent flat trend in temp hiring may represent a less-cautious approach to staffing than that which prevailed throughout the jobless recovery.

Manufacturing, however, continues to lose ground, though July’s losses were slight (employment in the sector was only down 4,000, but production-worker employment was off by 10,000, suggesting larger losses among blue-collar workers).  Though it is widely recognized that manufacturing is in the midst of a long-term structural decline (as opposed to a strictly cyclical slump), the increase in the magnitude of job loss in the sector is quite dramatic and, given the importance of the sector to both living standards and innovation, worthy of much more national attention than it has gotten.  The figure shows the percent changes in manufacturing employment across all past recoveries that lasted at least as long as this one (44 months so far).  While the pace of job gains has consistently diminished over time, the current period is an outlier and the only recovery with large net losses.

Manufacturing job changes from trough to 44th month of recovery

Hourly wages were up more than expected over the month (0.4%), the strongest month since last July, but the less volatile year-over-year measure is up 2.7%, the same rate as June.  In fact, this wage measure has fluctuated between 2.6% and 2.7% since last December, revealing no inflation-inducing acceleration of labor costs.

Aside from manufacturing, the job market, as reflected in today’s report, looks to be improving at a slightly faster pace than in recent months.  Employers in most industries appear to be shedding their cautious assessment of the expansion and are recognizing the need to staff up in order to meet expected levels of demand.  Employment rates are slowly improving overall and perhaps more quickly for less-skilled workers and minorities. While slack remains in the job market-employment rates are still well below peak levels-if current conditions persist, then this slack will be absorbed in coming months.

Today’s report was written by EPI economist Jared Bernstein, with research assistance from Yulia Fungard.

For more information on the most recent job and wage data, go to EPI’s Web feature

To view archived editions of JOBS PICTURE, click here.

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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