The Bureau of Labor Statistics released its latest figures on the U.S. labor market today. According to those figures, the U.S. created 243,000 new jobs in February 2006. This type of growth is certainly welcome news, given the overall lackluster performance in the preceding years.
The job gains were wide spread across a variety of industries. The single largest increase came in education and health care with 47,000, followed by construction with 41,000 new jobs, and professional and technical services, such as building services, with 39,000. Government jobs, especially at the sate and local level, grew by 38,000 and employment in leisure and hospitality industries, especially restaurants grew by 25,000. These gains helped to offset the continued lackluster performance of manufacturing employment, which declined again by 1,000 jobs.
Yet, this one good month does not change the larger picture much. For instance, employment growth in February 2006 was still below the long-term average of 0.2 percent between 1947 and March 2001. That is, there have only been 6 months – out of 59 months – in this business cycle, which started in March 2001, that were above average. The average employment growth from March 2001 through February 2006 reflects this with an average monthly growth rate of 0.03 percent that amounts to just one-sixth the long-term average. Finally, the employed share of the population remained at 62.9 percent in February, well below the 64.3 percent recorded at the end of the last business cycle in March 2001. Had the employed share of the population stayed the same, 3.2 million more people would be employed now. Considering these additional people would raise the unemployment rate to 6.8 percent for February 2006.
The wage figures from today’s release deserve particular attention. In February, hourly wages, before inflation, grew by 0.3 percent, a slowdown from 0.4 percent each in January 2006 and December 2005. Over the past twelve months, this has meant that hourly earnings grew by 3.5 percent. This is faster than wages grew from January to January or from December to December.
Some observers have used these wage data to ring the alarms about inflation. The data do not bear this out. For one, there is no sign of inflation. What economists worry about is so-called core inflation, i.e. price changes without the rather volatile prices for food and energy. This rate has remained steady at about 2.1 percent on a year-to-year basis, according to data from the Bureau of Labor Statistics. In recent months, it even seemed to have declined slightly. It was lower in January 2006 than in December 2005 and lower in December than in November.
Moreover, once inflation is taken into consideration, wages have actually fallen for more than three years. By January 2006, hourly inflation adjusted earnings were lower than at any point since October 2001. Hourly earnings either stayed flat or fell in 2003, 2004 and 2005.
Yet another sign that wages do not exert inflationary pressures is that year-on-year inflation peaked last September with 4.7 percent, while year-on-year wage growth did not start to climb consistently until December 2005 and when it did, it did so rather gradually, compared to recent price spikes. There seemed to be a delay of several months in response to the price hikes caused by higher oil prices last summer.
Finally, today’s figures show that there is still a lot of labor market slack. That is, employers can still hire a lot of people at going wages and do not have to raise wages and ultimately prices. The number of labor force participants grew more than employment with 335,000, thus actually raising the unemployment rate slightly to 4.8 percent from 4.7 percent in January. Long-term unemployment also picked up again as people still had a hard time finding a job. The average length of unemployment rose to 17.6 weeks, the longest it has been since November 2005.
The primary reason why wage growth remains relatively subdued is still that job growth is comparatively slow. As employment growth finds its footing and remains widespread, the hope is that wage growth will become at least strong enough to keep pace with inflation.
Christian Weller is a Senior Economist at the Center for American Progress, where he specializes in Social Security and retirement income, macroeconomics, the Federal Reserve, and international finance.
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