Every month, the Bureau of Labor Statistics releases its new estimates for employment growth and unemployment over the preceding month. And every month, economists and analysts try to tell a story based on the monthly snapshot. But the storyline during 2007 has so far been murky to say the least, and May’s estimates are no exception.
May numbers show a job gain of 157,000. This is almost twice as many jobs as the economy created in April of this year, which reinforces the volatile nature of job creation in 2007. Over the past five months, job growth has fluctuated between 80,000 and 175,000 with no clear direction one way or the other.
These fluctuations force us to step back and look at employment data from a longer-term perspective. Two factors emerge when older data is considered in relation to 2007 employment growth. First, job gains for this business cycle, which started in March 2001, are remarkably weak. The annualized average monthly job growth rate is 0.6 percent for the past 74 months—less than one-third the average for the prior business cycles. Only 10 months out of 74 during this business cycle—less than one-seventh—had job growth that was above the average job growth rate of the preceding business cycle. The most recent such month was March 2006.
Other figures confirm this slow employment growth. The share of the population that is employed has stayed below the 64.3 percent employment level that it reached in March 2001, at the end of the last business cycle. In May 2007, the employed share of the population was 63.0 percent; had the share of the population remained the same as in March 2001, an additional 2.8 million people would have been employed.
The important point about the slow employment growth is that not all groups are equally affected. Since May is the month when new college graduates begin to enter the labor force, it makes sense to consider the employed share of the population by educational levels. The employment outlook has actually improved since March 2001 for people without a high school degree, but it has worsened for everybody else.
The employed share of the population without a high school degree increased by 1.8 percentage points to 42.9 percent in May 2007 from 41.1 percent in March 2001. The gains were especially strong for men without a high school degree (see Figure 1). Yet for all other educational levels, the employed share decreased from March 2001 to May 2007.
College graduates saw their employed share drop by 1.4 percentage points from 77.8 percent in March 2001 to 76.4 percent in May 2007. As new college graduates are entering the labor force, the economy is still not providing the same level of opportunity for them that it did more than six years ago.
The second conclusion is that employment growth has slowed since 2006. The economy added on average about 200,000 jobs each month in the first five months of 2004, 2005, and 2006. Yet in 2007, the economy has so far added only 132,800 on average each month—a drop of 34.2 percent compared to the same period during the previous three years.
The average monthly employment growth in 2006 was 188,500, down from a monthly average of 211,800 in 2005. But this is still substantially higher than the average for 2007 so far. Put differently, the economy would have to create on average 228,500 new jobs each month for the rest of the year just to pull even with last year’s monthly employment data. This means that job growth would have to increase by 72.1 percent in the remaining seven months compared to the first five months. Since economic growth has slowed in the wake of a crumbling housing boom and higher gasoline prices, it seems unlikely that the economy will have sufficient momentum to generate this kind of job growth acceleration.
The weaknesses in job creation are concentrated in a number of industries. The construction sector, which was a crucial driver for stronger job creation, added no new jobs in May 2007. This reinforces the notion that the housing boom has come to a clear end.
The fear is that the end of the housing boom will spill over into the economy at large, particularly by dampening consumption. Today’s employment figures reinforce this notion since retail employment declined for the second month in a row with 4,900 jobs lost.
The Bureau of Economic Analysis also reported today that personal disposable income declined in inflation-adjusted terms by 0.4 percent in April of 2007. At the same time, real consumption increased by 0.2 percent. Still, inflation-adjusted consumption growth has slowed on a year-over-year basis for the past six months and in April saw its lowest 12-month gain since July of last year. As consumption loses momentum, retail employment may weaken further.
Instead of relying on consumers to drive economic growth, the hope is that export growth and ultimately investment growth may take its place. If that is the case, we should see stronger manufacturing employment and more commercial construction employment. So far, manufacturing employment continues it downward slide. Manufacturing lost another 19,000 jobs in May 2007, making it the 11th month in a row of job losses in this sector. And commercial construction declined by 1,600 jobs in May, making this the third month this year with employment losses in this sector.
These losses in crucial sectors are obviously offset by gains in what seem to be perennial job gainers. Health care added another 35,800 new jobs and restaurant employment grew by 34,500 jobs in May 2007. Besides these two sectors, which have grown for quite some time, professional services, such as accounting and architecture, grew by 27,000; education added 18,000 new jobs; and the government expanded by 22,000 jobs in May.
The labor market remains a mixed bag with an uncertain future for the time being. Given the large challenges that the economy is currently facing due to the end of the housing boom and higher gasoline prices, stronger and broader employment gains in crucial sectors are necessary to create increasing job opportunities, especially for college graduates who are beginning their search for their first job in earnest.
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