November 3, 2006
Private-Sector Payrolls up Only 58,000, despite falling unemployment rate
by Jared Bernstein with research assistance from Rob Gray
The nation’s employers added 92,000 jobs last month, about 30,000 fewer than expected, according to today’s report from the Bureau of Labor Statistics. Private-sector job gains were only 58,000, the lowest month for job growth in a year. However, upward revisions of data from August and September added a total of 139,000 more jobs to those months’ gains, bringing the average monthly gain for the year thus far up to about 150,000 per month for total payrolls, and 126,000 for the private sector.
The unemployment rate fell to 4.4%, the lowest rates since May 2001, due to a large increase in employment as measured by the survey of households (up 437,000). Analysts typically pay less attention to monthly employment gains from the household survey as these data come from a much smaller sample and are too “noisy,” or volatile, to trust on a monthly basis. Over the past two years, for example, the variance (I.e., data volatility) of monthly changes has been five times greater in the household than the payroll survey.
Outside of some key sectors that are clearly underperforming—residential housing, manufacturing, and retail—the job market remains relatively strong, with unemployment low and wage gains that are likely to beat inflation.
There are some signs, however, that the slowing economy is beginning to reach the job market. The first chart below shows job gains over the past three months, both total and private sector. The slowing of monthly gains is clear, and if this pattern persists, unemployment will eventually reverse course as the job market slackens.
Job gains in the payroll sector came from the service sector, including 43,000 jobs in professional and business services, of which 15,000 were temp workers. An increase in temp hiring can signal employers are expecting a slowdown, but it is too soon to tell whether this is behind last month’s increase. Local government added 30,000 jobs in the education sector, and health care continued its relentless expansion, up 23,000 last month. Jobs in health care represent 11% of private employment, yet they have accounted for 33% of job growth during this recovery.
The slump in residential housing is clearly contributing to the diminished job gains in recent months. EPI’s index of jobs related to residential housing, including construction and real estate, fell by 33,000 last month, led by large losses in residential contractors. As shown in the figure, thus far this year jobs related to housing are down 26,000, compared to a gain of 245,000 over the same period last year.
The nation’s factories shed 39,000 jobs last month, the worst monthly losses since August 2003. Losses were pervasive throughout the sector, both in durable (led by autos, down 15,000) and non-durable goods. Though total payrolls have been growing consistently since September 2003, manufacturing has posted gains in only 11 of the past 38 months, and factory employment is down 187,000 jobs during that period.
Turning to the more positive results from the household survey, the unemployment rate fell for most groups of workers, and more importantly, employment rates rose, suggesting more workers are finding jobs (note that unemployment can also fall if job seekers give up the job search and leave the labor market). Time spent unemployed also fell last month, as 16% of the unemployed were jobless for at least half a year, down from 18.2% last month and the lowest share since March 2002.
One negative indicator from the household survey was a jump of over 200,000 in the number of “involuntary part-timers,” persons working part-time jobs though they would prefer full-time work. This indicator had been trending down recently, and, in tandem with the temp work result cited above, bears close watching in coming months as a possible indicator of softening labor demand.
Hourly wages before inflation are up 3.9% over the past year, a growth rate that is likely to surpass inflation, which most recently moderated due to declining energy costs. This is slightly below last month’s wage reading of 4.1%, and in recent months, this series has shown no signs of “wage-push” inflation. Given a slight up-tick in weekly hours, weekly earnings were up 4.2% over the past year, but this measure has also been steady in recent months, with no signs of acceleration.
Once again, we have a tale of two surveys, with the household survey painting a prettier picture of job market conditions than the payroll survey. However, the payroll survey is widely agreed to be a more reliable measure of monthly job changes, and while it shows moderate gains so far this year, it also reveals steadily slower job growth in recent months. If the economy continues to grow below trend, as was clearly the case in the third quarter (real GDP up only 1.6%), monthly gains will continue to disappoint in coming months, and the job market will slacken.
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