Financial markets these days are on a roller coaster ride amid a mixed bag of financial and economic news. For average Americans, though, Main Street is closer to home than Wall Street, which is why the release of the latest employment figures today means more to them than the price of stocks in China.
The numbers from the Bureau of Labor Statistics do not bode well for workers hoping for more job opportunities and higher wages. According to these figures, the economy created only 97,000 new jobs in February 2007, the smallest absolute increase in more than two years, since January 2005. This lackluster growth is due to a sharp drop in construction employment, continued decreases in manufacturing employment, and comparatively small increases in retail employment.
In response to weak hiring in these sectors, many people gave up looking for jobs, shrinking the labor force by 190,000 in February alone. Nor is job creation likely to grow in the coming months as it appears that the best times for this business cycle, which started in March 2001, may be behind us.
February was the second month in a row of declining job growth. This followed on the heels of substantially slower job growth in 2006 than in 2005. In 2005, the economy created on average 212,000 new jobs per month, compared to 189,000 new jobs in 2006, a decline of 9.6 percent.
Indeed, weak job creation defines this business cycle compared to previous business cycles. In total, this business cycle has had the weakest job growth of any business cycle since the Great Depression. Since March 2001, job growth 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 1.5 percent per month—only about half the rate of the same period of previous business cycles of at least equal length. These figures also explain why only 10 months out of a total of 71 months in this business cycle showed above average employment growth.
Job seekers and employees alike are probably more interested in what the future may bring and not so much what the past has wrought. A look at other economic figures, especially the data on gross domestic product, shows trends that indicate the economy enjoyed reasonably healthy business investment growth over the past few years alongside strengthening export growth. For this spending to have an impact on Americans’ lives, however, the economy needs to register gains in commercial construction jobs as businesses build new offices and new factories and increases in manufacturing employment as businesses spend more on new machinery and as foreigners buy more American-made products.
Today’s employment figures show that neither gains in construction nor manufacturing employment are happening. The biggest loser in February was construction employment. Jobs in this sector dropped by a whopping 62,000. This was the single largest monthly decline since January 1991. In particular, employment in commercial construction, including contractors, dropped by 28,300 jobs in February—a slightly larger decline than the losses in residential construction, which totaled 26,700.
For the economy to gain some momentum going forward, manufacturing employment would thus have to increase to offset these construction-related indicators. That’s not happening, according to estimates by the BLS. Manufacturing employment dropped by 14,000 jobs in February, the eighth month in a row of employment declines in this sector. Interestingly, the job losses are equally distributed between durable goods manufacturing, which includes machinery and cars, and nondurable goods manufacturing, which comprises food, textiles, and similarly short-lived products.
The decline in nondurable goods production is likely a result of lackluster consumption spending. People aren’t spending as freely as before and companies hence do not need to produce as much as before. Subsequent job losses follow closely behind.
Decreases in durable goods manufacturing, though, are not as easily explained. In fact, the losses are spread across a number of industries, such as semiconductors, wood products, electrical equipment, and cars, among others. Some of this may be also be fallout from the declining momentum of consumption spending, such as less spending on cars.
In comparison, though, spending in other categories should be improving as exports and business investment spending are still relatively healthy. One silver lining here is the gain of 5,100 jobs in the production of machinery. If business spending and exports continue to increase, it is possible that we will see further increases in this sector, hopefully to a degree large enough to compensate for losses in other manufacturing sub-sectors.
With two pivotal sectors losing jobs, where did job gains actually occur? Most notably, health care added 34,100 jobs and leisure and hospitality, including restaurants and hotels, added 31,000 new jobs in February. In addition, the retail sector increased employment slightly, with 7,000 new jobs last month.
Since much of these employment gains depend on consumer spending, though, it is unclear how much longer these gains can be sustained. Consumers may further curtail their spending following lackluster income growth and lower home values.
These job gains, though, cannot mask the fact that people seeking employment are increasingly discouraged. Many people simply stayed out of the labor force. The number of people who were neither employed nor looking for a job rose by 374,000 in February.
This helps explain why lackluster employment growth went along with a slight improvement in the unemployment rate. More important than the unemployment rate is the employment rate as it relates to those who are looking for a job. After all, people are looking for jobs, not looking to be out of work.
The employed share of the population dropped for the second month in a row to 63.2 percent, suggesting that it has indeed gotten harder for people to find employment. Today’s figures show that the part of the economy that matters most for families, the labor market, has lost a lot of momentum since 2005. What’s more, there are currently only limited indications that employment momentum will rebound.
Christian E. Weller is Senior Economist at the Center for American Progress. To speak with him, please contact:
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