The Bureau of Labor Statistics today released its employment estimates for November 2006, showing a gain of 132,000 jobs and sparking anew a monthly debate among economists over what is the most important indicator in the monthly BLS figures.
Does the real story lie in the headline numbers of total job growth, average wage increases, and the overall unemployment rate? Or do the underlying trends that make up those figures tell a more important story?
With the economy hanging in the balance—as it has for much of 2006—the underlying trends gain in importance, I would argue, since we may be able parse out the forces that are driving the labor market down and those that lift it up. The BLS figures released today confirm that the economy is still in an adjustment process, in which the forces that could help lift the economy are not gaining a foothold.
Before diving into the nitty gritty of the labor market figures, let’s take a quick look at the overall figures. For the entire business cycle, which started in March 2001, job growth averaged an annualized 0.5 percent per month, about one-fifth of the average of previous business cycles. Only six out of 68 months of this business cycle posted job growth that was above the average of previous business cycles.
Moreover, job growth has slowed. In 2004, the year with the strongest employment growth in this business cycle, the economy added 175,000 new jobs each month. In 2005, it was 165,000 new jobs, and in 2006, it came to an average of 149,000 new jobs per month—or 14.6 percent less than in 2004.
With anemic job growth, the unemployed are finding it a little harder to find new jobs. The unemployment rate rose to 4.5 percent in November from 4.4 percent the previous month. Even more suggestive are the figures on long-term unemployment. The reason: A characteristic of this business cycle is that out-of-work job seekers face a comparatively long time finding a new job.
The median duration of unemployment, or half of all unemployed who have been looking for a job longer than that time period, increased to 8.3 weeks in November, up from 8.1 weeks in October. And the share of the unemployed who have been looking for a job for more than 27 weeks rose to 16.8 percent, up from 16.0 percent in the previous month.
But those are the (admittedly not very rosy) headline figures. What people, especially those who are waiting for more and better jobs, really want to know is what lies ahead.
The basic story of the current economic situation is that the consumption boom, which relied heavily on the housing boom, is ending. Residential construction and housing- related sectors of the economy should be shedding jobs and retail sector employment should be more or less flat. The hope is that the economy will get a boost from more business investment, which should show up in labor market statistics in the form of stronger non-residential construction and manufacturing employment, particularly in durable goods.
Today’s figures show that the downward trends are clearly visible, but that the upward trends are not there. Total construction employment fell by 29,000 in November. This included the second decline in a row in residential construction jobs, which had 6,000 fewer workers in November than in October. The BLS figures also showed the fourth decline in a row in nonresidential construction employment, which dropped by 3,200 jobs in November.
The upshot: commercial construction does not appear to be picking up the slack in job creation resulting from the end of the residential housing boom. In comparison, though, retail employment is doing better than in previous months. The retail sector gained 20,400 new jobs in November, though that figure still translates into 70,700 fewer jobs than at the beginning of the year due to six months of decline.
Nor is manufacturing employment bringing any real salvation. Total manufacturing employment dropped by 15,000 jobs, the majority of which was due to a decline of 13,000 jobs in durable goods manufacturing, which includes employment declines in electrical equipment manufacturing and transportation equipment manufacturing.
So where did all the new jobs in November come from? And isn’t it possible that those sectors could carry the economy forward? Professional services, such as legal services, accounting, and temporary help businesses, added 43,000 new jobs, health care added another 27,700 new jobs, and hotels and restaurants created 38,700 new jobs.
These are good and important jobs, but their growth shows that the economy is still relying heavily on consumption as the driving engine for job growth. With consumers feeling the pinch of a weaker labor market and of a tumbling housing market, it is unclear how much longer the economy can rely on consumption as a motor for employment creation.
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