Tell Tale Signs
Tell Tale Signs
Despite Broad Job Gains, Widespread Weaknesses Remain
Christian E. Weller compares recent employment growth figures with past labor gains in previous economic cycles. The analysis is telling.
The Bureau of Labor Statistics today released its employment estimates for January 2007 and revised estimates for the months since March 2006—new figures that suggest weakening labor market trends in 2006 are continuing in 2007.
According to these estimates, the economy created 111,000 new jobs in January, sharply less than the 206,000 new jobs in December 2006; the unemployment rate rose from 4.5 percent to 4.6 percent, hourly earnings of production non-supervisory workers grew by 0.2 percent, and weekly earnings even fell by 0.1 percent in January 2007.
Today’s estimates also include revised estimates for the months since March 2006 when the BLS undertook its last routine revision of its employment estimates. Because of these revisions, past employment growth was stronger than previously estimated over that period. Now recorded are 933,000 more jobs, on a seasonally adjusted basis, in December 2006 than previously recorded.
Despite the addition of all of these jobs, three points surprisingly remain.
First, the labor market recovery of this business cycle, which started in March 2001, is the weakest of any business cycle since the Great Depression. Monthly job growth in this business cycle averaged an annualized rate of 0.6 percent, or less than one third of the average of previous business cycles. Even since August 2003, when job growth in this business cycle turned consistently positive, job creation averaged only an annualized rate of 1.6 percent per month, or only about half the rate during the same period of previous business cycles of at least equal length.
Second, a very small number of months showed above-average employment growth. Only 10 months out of 70 showed employment growth above the long-term average growth rate.
Third, job growth slowed in 2006 from the levels recorded in 2005. While the economy created 212,000 new jobs each month in 2005, it added only 187,000 jobs per month in 2006. With 111,000 new jobs in January, 2007, the economy is not off to a good start this year, either.
The primary job gainers of the past few months remained on top in January. Much of the growth in new jobs came in health care and restaurant employment as it had in previous months. The health care sector added 24,500 new jobs in January; restaurants added another 20,900 new jobs.
At the same time, it seems that the weakness in the construction and housing-related sectors may have leveled off. Total construction employment increased by 22,000 new jobs, mainly driven by the addition of 18,600 contractors in the nonresidential construction area.
As a result, construction and housing-related sectors, which include furniture retail, building material retail, and real estate financing, added 28,700 new jobs in January. This is still well below the monthly average of 43,900 new jobs recorded for 2005, but also well above the monthly average of 16,500 for 2006.
Even though recent estimates on non-residential construction spending showed this part of the economy growing much more slowly in the fourth quarter than before, the employment picture suggests that this part of the construction market is still holding up.
At the same time, though, the weakness in the retail sector continues. In six out of the past 12 months, retail employment declined. And in January 2007, it added only 4,000 new jobs. So far, the newly released figures do not suggest an end to the weakness in this consumer related sector, where on average 3,500 jobs were lost each month in 2006, down from monthly gains of 19,000 jobs in 2005.
The weakening in job creation does not necessarily bode well for wage growth. Hourly earnings for non-supervisory production workers, the vast majority of jobs in the U.S., rose by only 0.2 percent in January 2007—the smallest wage gain since September 2006. Also, weekly earnings fell by 0.1 percent in January, the first such decline since May 2006.
On an annual basis, both hourly and weekly earnings were 4.0 percent greater than a year earlier. This marks the smallest year-over-year gain in nominal hourly wages since October 2006, and the smallest year-over-year gain in weekly wages since March 2006. With wage growth slowing, it will be hard for workers to keep in pace with rising prices.
The one sector that should be seeing strong job gains—manufacturing—declined again in January 2007. Earlier in the week, the Bureau of Economic Analysis released its estimates for economic growth in the fourth quarter of 2006 that indicated the U.S. economy had been doing well in the fourth quarter in terms of exports of goods and services.
To lend future strength to the entire U.S. economy, the hope would be that stronger export growth helps to create more jobs domestically, especially in the ailing manufacturing sector. Instead, manufacturing lost 16,000 jobs overall, which covered a drop of 28,000 jobs in durable goods manufacturing. This marks the seventh month in a row with job declines in manufacturing. If stronger export growth can translate into a healthier economy, it needs to first help to create more jobs in this pivotal sector.
Today’s employment figures underscore that the economy is still creating jobs on a broad basis, yet the estimates also indicate that the overall labor market performance may be weakening relative to previous years. In addition, the new estimates raise concerns about the future of the labor market and the economy, particularly because stronger export growth has not helped the crucial manufacturing sector back on its feet.
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Christian E. Weller