April Job Growth Disappoints

Analysis of New Labor Numbers

By John S. Irons | May 4, 2007

The April numbers show a disappointing slowdown, and a continuation of a mediocre upward trend.

The U.S. economy created just 88,000 net new jobs in April 2007, down from a revised 177,000 new jobs in March, according to new Bureau of Labor Statistics data. Manufacturing employment continues to decline with a drop of 19,000 jobs. The construction sector saw a decline as well, while the service-providing sector saw gains over the past month. Residential construction saw a seventh straight month of decline and is still well below peak employment in that sector.

Monthly job growth averaged 129,000 during the first four months of 2007, which shows a decrease from the average of 189,000 new jobs per month in 2006 and 212,000 new jobs per month in 2005.

The housing market decline and the associated home-lending market troubles continue to loom over the broader U.S. economy. The effect of the housing market decline is still largely unknown, but today’s employment data release shows there may be some continuing impact, especially in light of weak first quarter GDP numbers, which at 1.3 percent showed a slowdown in the overall economy.

The unemployment rate remained essentially unchanged, rising by 0.1 percentage points to 4.5 percent. This slight change was due to a substantial decline in employment as reported on the household survey. The increase in the unemployment rate was muted due to a large surge of people exiting the labor force, which masked a decline in employment.

Residential construction

Employment in the residential construction industry peaked in September last year and continues to remain weak, declining for the seventh month in a row. The number of people employed last month held roughly constant with a decline of an estimated 2,700 jobs last month, as shown in the figure below. This change brings the total job loss in the residential construction industry to 32,200 jobs, or a decline of 3.1 percent since the peak last year.

Growth areas

Some areas continue to grow despite labor market weaknesses. The health care industry added 37,000 new jobs in April. The leisure and hospitality industries, including restaurants and hotels, added 22,000 new jobs. And the service sector as a whole increased employment by 116,000 last month.

Labor force participation

The labor force fell by 392,000, and the number of people classified as out of the labor force increased by 611,000 last month. The number of people classified as unemployed increased by 77,000, which combined with a drop in employment of 468,000 brought the share of the population currently employed down 0.3 percentage points to 63 percent, still well below the peak of 64.7 percent prior to the last recession.

Conclusion

The data overall combined with the past two months of weak growth indicate a weakening in the labor market, and perhaps in the economy as a whole. The broader market may be experiencing spillover from the housing sector and higher gas prices, but the full extent of the damage may still be to come.

John S. Irons is the Director of Tax and Budget Policy at the Center for American Progress.