Center for American Progress

Job Growth Looks Good Against Diminished Expectations
Press Statement

Job Growth Looks Good Against Diminished Expectations

By Christian E. Weller

The Bureau of Labor Statistics released its latest employment numbers this morning, estimating that the economy added 132,000 new jobs in June 2007 and that employment growth in previous months was better than previously reported. The estimates revised the numbers for April and May upward by 42,000 and 33,000 jobs respectively.

Yet job gains are still far from robust. The overall pace of job creation, which has slowed compared to prior years, is barely enough to keep pace with population growth. And the job gains that are occurring are concentrated in only a few industries. These growth figures are certainly welcome news, but the labor market still has a long way to go before it can be really considered robust.

It is crucial to keep the most recent job gains in perspective. The longer-term trend shows that the labor market has been remarkably weak throughout this business cycle, which started in March 2001, and that the most recent months just continued this trend. The annualized average monthly job growth rate is 0.7 percent for the past 75 months—about one-third the average for the prior business cycles. Only 10 months out of 75 during this business cycle—less than one-seventh—has job growth been above the average job growth rate of the preceding business cycle. The most recent such month was March 2006.

This slow employment growth has meant that jobs did not keep pace with the population. The share of the population that is employed has stayed below the 64.3 percent employment level that it reached in March 2001 at the end of the last business cycle. In June 2007, the employed share of the population was 63.1 percent, slightly up from May’s 63.0 percent. Had the employed share of the population remained the same as in March 2001, 2.8 million more people than was the case would have been employed in June 2007.

The employed share of the population in June 2007 was also below the level recorded at the end of 2006, when 63.4 percent of the population had a job. This illustrates that job growth has slowed compared to previous years. On average, the economy added 211,800 new jobs per month in 2005. In 2006, this monthly average declined to 188,600 new jobs per month. And it fell further to 145,200 new jobs per month in 2007, which puts average job growth even below the levels of 2004, when the economy added on average 172,100 new jobs per month.

Moreover, the employment gains were largely concentrated in three industries. The most notable job increase came in government employment, with 40,000 new jobs—all of them occurring at the state and local government level. In addition, health care and restaurants, two sectors that have shown remarkable job strength throughout the past few years, added 42,300 and 34,600 new jobs, respectively.

In comparison, the construction sector, which had provided a lot of labor market momentum before the residential housing boom came to an end in late 2005, added only 12,000 new jobs, almost all of which happened in nonresidential construction. Residential construction employment was essentially flat, reflecting the continued weakness in the housing sector.

The fact that residential housing remains flat is bad news particularly for Hispanics, who saw strong employment gains during the years of the construction boom. The employed share of the Hispanic population managed to almost recover all of its losses of the last recession. By December 2006, the employed share of the Hispanic population was 65.8 percent, slightly below its level of 66.0 percent at the peak of the last business cycle in March 2001.

Since December 2006, however, Hispanics have seen a larger decline in their employed share with a drop of 1.4 percentage points from 65.8 percent in December 2006 to 64.4 percent in June 2007. In comparison, the employed share of the white and African American populations stayed at least one percentage point below its last peak. The employed share of whites fell by only 0.3 percentage points and that of African Americans dropped by 0.6 percentage points over the same time.

This comparatively weak job growth has also contributed to slowing wage growth. Hourly wages for production, non-supervisory workers who make up about 80 percent of the workforce rose by 0.3 percent in June 2007. Hourly wages in June were 3.9 percent higher than a year earlier. This is down from a monthly growth rate of 0.4 percent in May and a year-over-year change of 4.0 percent in May.

This slower wage growth comes after inflation-adjusted hourly earnings already declined in March, April, and May. In fact, after accounting for inflation, hourly and weekly earnings in May 2007, the last month for which data are available, were the lowest since September 2006. That is, because of weak job growth, workers do not have the bargaining power to keep wage growth at least in line with price changes.

Just because job growth is better than expected doesn’t mean that it is strong. It is certainly welcome news that the economy is seeing some unexpected employment gains, but these are happening in a labor market that has been struggling for years to find a foothold. Workers who are burdened by high prices and near-record amounts of household debt need faster job and wage growth, not lowered expectations.