The election is over and the attention now turns to solving the country’s problems. Chief among them is the economy, which only became more pressing with this morning’s jobs numbers. The Bureau of Labor Statistics just reported that the labor market shrank by another 240,000 in October, bringing the total job loss over the past 10 months to nearly 1.2 million.
At the same time, the unemployment rate rose again and wage growth slowed. The deepening labor market contraction that followed years of slow job growth requires both a short-term response to keep job losses from spiraling downward and a long-term policy response that will allow American families to recover their income losses since 2000, when the last business cycle and strong labor market performance ended.
This economic downturn may not be called a recession—although it certainly feels like one for millions of Americans—but there has not been a 10 month decline in the labor market since World War II that did not coincide with a recession. The last time the U.S. economy lost jobs for 10 months in a row when it was not officially in a recession lasted from December 1943 to September 1944.
Total job losses for 2008 now exceed 1 million. And the U.S. labor market shrunk by nearly 1.2 million jobs over the course of the first 10 months of 2008. This reflects a deepening of the labor market slump. More than 500,000 jobs were lost in September and October, and the remaining 655,000 were spread out over the first eight months of this year.
Yet this deepening crisis is not a short-term phenomenon. Even before the labor market contraction started, job growth was meager in this business cycle, which started in March 2001. Average monthly job growth amounted to an annualized rate of 0.6 percent—less than one-third the long-term historic average job growth rate. And only 11 months during the 81 months from March 2001 to December 2007 showed above average job growth.
Even those good times of this business cycle are long gone. The year with the highest average job growth was 2005, when the economy generated 211,000 new jobs each month. In 2006, the average amounted to only 175,000 jobs per month, followed by an average of only 91,300 jobs in 2007. The labor market started to slow in early 2006, specifically May 2006, when job losses in construction began in earnest.
This is a severe labor market slump, especially in some industries. Four industries—manufacturing, construction, retail, and finance—deserve particular attention. They all tell a larger story of lingering economic woe.
It is as if past policymakers simply gave up on manufacturing. This sector has now lost jobs for 28 months in a row. It declined by 90,000 jobs in October alone, marking the largest decline in this sector since July 2003. Manufacturing saw job losses in 78 months out of the 91 months since March 2001, or 85.7 percent of the time. This is a negative record that should stir Congress and the administration into action, especially since manufacturing is still a nexus for good jobs and high productivity.
Construction was once the success story of this business cycle. Before construction employment markedly slowed, 47.4 percent of all new private sector jobs were created in this sector alone from March 2001 through the end of 2005. But these times are now well behind us. Construction has lost jobs for 16 months in a row, including another decrease of 49,000 in October. After construction employment growth first turned negative, there were 23 months with decreasing construction jobs over the course of the past two and a half years. The last time this happened was the 30-month period that ended in November 1991.
As construction went, so did the rest of the economy. Consumer spending, a major pillar of economic growth in this business cycle, slowed and retail employment went with it. Retail has now lost jobs for 11 months in a row, with another decline of 38,100 in October. The last time losses in the retail sector lasted this long was during and immediately following the recession in the early 1990s.
Moreover, the bursting housing bubble brought on record foreclosures and a severe financial crisis. Financial activities thus experienced sharp losses, dropping another 24,000 jobs in October. This was the largest monthly job loss in this sector on record, reflecting the severity of the financial crisis.
Financial service employment has dropped for seven months in a row. There were 22 months of job losses in this sector over the past two and a half years—the first time that this sector has experienced such a dramatic loss since the 30-month period ending in August 1944. The difference is that now financial services employment is 80.7 percent greater relative to total private sector employment than it was in the summer of 1944.
The only sectors with some job growth in October are health care and the government. Health care expanded by 26,000 jobs in October and government employment rose by 23,000 jobs, 21,000 of which were created by local governments. As the economic crisis makes its way into tax receipts of states and localities, hiring at this level of government will likely slow, too.
The unemployment rate is rising as employers are putting off hiring, hurting especially the most vulnerable. The overall unemployment rate rose again to 6.5 percent, its highest level since March 1994.
The unemployment rates for minorities are especially troublesome. African Americans’ unemployment rate stood at 11.1 percent in October, and Hispanics’ unemployment rate was 8.8 percent, compared to 5.9 percent for whites. The rate for Hispanics is at its highest level since August 1996.
The unemployment rate for workers with less than a high school degree also increased in October, reaching 10.3 percent. This is substantially higher than the 6.3 percent unemployment rate for high school graduates, the 5.3 percent unemployment rate for workers with some college education, and the 3.1 percent unemployment rate for workers with college degrees.
And once people lose their jobs, it is much harder than in the past to find new employment. All indicators of long-term unemployment have increased in October. The median length of unemployment now stands at 10.6 weeks, up from 10.2 in September. The average length of unemployment increased to 19.7 weeks from 18.4 weeks. And the share of unemployed workers out of a job for 27 weeks or more rose to 22.3 percent from 21.1 percent. This means that a growing number of workers will begin to exhaust their unemployment benefits unless Congress acts again on the unemployment insurance.
The bad labor market news keeps on coming. Wage growth is also very slow, failing to keep pace with inflation. In September 2008, the last month for which data are available, real hourly earnings were 1.9 percent below those in September 2007, and 0.7 percent below those in September 2006. Hourly wages rose by less than 1 percent on an annual basis in October before inflation is accounted for. This is likely not enough to keep pace with inflation.
The prolonged labor market weakness that has lingered since early 2006 has turned into an outright labor market recession in 2008. America’s struggling middle class families need policymakers to strengthen their ongoing policy efforts to solve the problems that have been ailing them yet been ignored for too long.
Successfully addressing the problems facing our economy and labor market will require policies that fall into four categories: stabilization, stimulus, recovery, and growth. We need to restore our financial markets to normal functioning, provide an economic stimulus to block a further downward spiral, put in place policies to recover the jobs that have been lost, and enact long overdue polices to put the national on a trajectory of strong long-term economic growth.
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