The unemployment rate jumped in May by half a percent, rising from 5.0 to 5.5 percent, the biggest increase in over 20 years, according to figures released today by the Department of Labor. The last time the unemployment rate increased by this much was February 1986.
The economy also lost 49,000 jobs during May, and has now lost 324,000 jobs so far this year, making this the worst five-month period of job loss since June 2003, and the first period of five straight months of job loss since 2003. The Department of Labor also revised downward their employment estimates for March and April, meaning that the economy lost 15,000 more jobs than previously thought in those months.
These jobs numbers come at the same time that workers’ pain from the housing market is hitting new highs. The Mortgage Bankers Association yesterday reported that roughly 1.3 million homes were in foreclosure at the end of the first quarter of 2008. The foreclosure rate increased by 0.43 percentage points in the first quarter, and now stands at 2.47 percent on a seasonally adjusted basis.
These two economic reports confirm the very weak state of the labor market and the overall economy, and further demonstrate the need for Congress to take additional action.
The five straight months of job loss to start 2008 follow a weak year of job creation in 2007, when the economy created only 1 million jobs, a growth rate of less than 1 percent. In 2006, another relatively weak year for the labor market, job growth was 1.7 percent, and the economy added 2.3 million jobs—a million more jobs than were added in 2007. By contrast, in the late 1990s, the economy was adding 3 million jobs per year, and job growth was over 2.5 percent. Today’s economic reports are yet another suggestion that the Bush administration’s economic record is quite weak.
The increases in unemployment in May were widespread across races and age groups, indicating a broad-based economic slowdown, though some groups faced particular difficulties. Unemployment for African Americans shot up by 1.1 percentage points to 9.7 percent from 8.6 percent, the biggest monthly increase since 2005. Unemployment for whites also increased, but by a much smaller amount, rising from 4.4 percent to 4.9 percent. And unemployment held steady for Latinos at 6.9 percent.
The May jobs report shows significant weakness in a number of sectors of the economy, with construction, manufacturing, and retail trade performing especially poorly. Employment in construction fell by 34,000 in May, and has now lost 475,000 jobs since September 2006, indicating the severe harm that the housing market collapse and credit crunch have had on employment in this sector.
Manufacturing continued its long slide, losing 26,000 jobs for the month, and nearly 350,000 since last May. Retail trade lost 27,000 jobs for the month, suggesting that consumers are feeling the pinch of tough economic times and are reluctant to make new purchases. Since last May, retail trade has shed 165,000 jobs.
As has been the case for some time, job gains in the few sectors that are growing—primarily health care, restaurants, and government—were not sufficient to overcome losses in other sectors. In May, health care created 34,000 jobs; it has created nearly 400,000 jobs since last May. Food services increased by 11,000 for the month, and government by 17,000.
All told, today’s jobs figures paint a bleak picture of a weak economy. There is no way to put a positive face on today’s job figures. The labor market has been in the doldrums for years, with well below average job growth, flat wages, and declining benefits. This has forced families deeper and deeper into record amounts of debt. And just as families are beginning to ponder how they are ever going to repay this debt, the rug is pulled out from under them as jobs become scarcer.
Today’s economic news of significant weakness in the labor market and rising distress in the housing market are a clarion call for action.
Policymakers who have felt that passing a small stimulus bill with tax rebates was sufficient to get the economy back on track should read today’s job report as a wake up call. Congress needs to craft an economic recovery plan that addresses the current nose dive in the housing and labor markets—boosting unemployment insurance would be a good first step—but also starts to address the long-term weaknesses in the economy. Congress also needs to take immediate action to help struggling workers and homeowners, but they should also think about reorienting our longer-term economic policies to make the economy work for real people with real economic problems—not just financial markets dealing with mostly self-inflicted pain.