This morning the Bureau of Labor Statistics reported that the economy created 92,000 new jobs in October. At the same time, it revised the previous two months numbers, adding another 139,000 new jobs total. While this means that the previous two months were stronger than expected, it does not mean that the labor market was strong or that the slowdown in the labor market is not happening.
Job creation is well below historical averages, no matter how one looks at the data. For the entire business cycle, which started in March 2001, job growth averaged an annualized 0.4 percent per month, which is less than one fifth of the average of previous business cycles. Since the start of the recovery in November 2001, job growth has averaged an annualized rate of 0.8 percent per month—by far the lowest of any expansion of at least equal length.
The picture does not change when one ignores the months of job destruction, counting only the months after the job creation started again—a convenient but faulty arithmetic consistently used by the Bush administration. Since August 2003, more than a year and a half into the recovery, job creation has equaled an annualized rate of 1.4 percent per month—about half of the average job growth during the same period in previous recoveries of at least the same length.
The data also indicates a slowing labor market. Only a scant six months out of the past 67 have had above-average job growth in this business cycle. None of them were in 2006, but two of them were in 2005, and four of them were in 2004. Job creation in 2005 averaged 165,000 new jobs per month, which followed an average of 175,000 new jobs per month in 2004.
In 2006, only 147,000 new jobs were created each month—a 16 percent decline from 2004, the strongest calendar year in terms of job creation during this business cycle. October also marked the second month in a row with declining employment growth. According to the revised figures, job growth in October was less than half of that in August of this year.
We can expect to see little change from a slowing labor market in the future. Construction, the main engine of job growth, is slowing. Much of the current business cycle has been carried forward by employment growth in construction and related industries such as furniture, building trades retail, and real estate financing. From March 2001 to March 2006, when job growth in these sectors started to decline, 69.1 percent of all newly created private sector jobs were in these sectors. Since March 2006, these industries have grown by an average of 1,100 new jobs per month. In the six months prior to March 2006, it was 41,000 new jobs, and in the previous 12 months it was 35,000 new jobs.
The slowdown in construction and related industries has been ongoing since earlier this year, but October marked a sharp downturn as total employment in construction and related industries declined by 26,800 jobs. Underlying this decline was a drop of 26,000 jobs in construction.
Other critical sectors are not picking up the slack. The housing boom is coming to an end, lowering construction and related employment, and the economy needs a new motor. The government is mired in deficits, consumers are running out of steam with the end of the housing boom, and trade deficits are reaching new record highs, which means that business investment must carry the economy forward. This will have to lead to job creation domestically, predominantly in the manufacturing sector, to be successful. This has not happened. Manufacturing employment also fell by a whopping 39,000 jobs in October.
This leaves the labor market hanging its hat on two recent favorites—health care and restaurants. October saw jobs in health care expand by 22,500 and in restaurants by 26,700. This makes these two industries the front runners in terms of private sector job creation this past month. It will remain to be seen how much longer the labor market can count on people going to the hospital and going out to eat.
Despite the revisions of the past few months of job creation, today’s figures confirm three things. First, we are experiencing the lowest job creation rates of any business cycle since the Great Depression. Second, the labor market is slowing. And third, the decline in the housing market has not been replaced by a suitable follow-up boom in manufacturing employment.
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