Economic Indicators | Wages, Incomes, and Wealth

Jobs Picture—November 5, 2004

November 5, 2004

Strong October job growth, as payrolls rise by 337,000

The nation’s payrolls expanded sharply in October, up 337,000, according to today’s report from the Bureau of Labor Statistics, making this the strongest month for job growth since March.  Revisions to the August and September numbers added 113,000 jobs, and payrolls are 2.1 million above the level of one year ago.  Whether this unexpectedly large increase represents a positive new trend in job growth remains to be seen given that there were a few similar months of growth earlier in the year before employment once again slowed. 

The unemployment rate edged up slightly to 5.5%, driven by a sharp increase of 367,000 persons in the labor force, reversing the labor force contraction of the prior two months.  This may signal that stronger job creation is bringing formerly discouraged workers back into the job market.  It is notable in this regard that the share of the unemployed who are new labor market entrants has been climbing this year, jumping to 9.3% last month to reach the highest level since 1994, when the BLS introduced a new way of measuring this phenomenon.

Job growth was broad-based by industry, with most major sectors contributing employment gains.  One important exception was manufacturing, which lost 5,000 jobs in October.  Though the nation’s factories were expanding employment last spring, they have since retrenched, and manufacturers have added no net new jobs since June.  Construction was up strongly, adding 71,000 jobs, but the BLS cautioned that some of this increase reflects hurricane-related clean-up activities.

In the service sector, businesses added 97,000 jobs last month, but about half of them (48,000) were in temporary work, suggesting employers’ continued reluctance to commit to permanent hires.  Since the recovery began three years ago in November 2001, temp work has been one of the fastest growing sectors, up 18.6% compared to 0.9% for overall payrolls.  Since temp jobs pay less than average, the rapid growth in this sector has been one reason for the job-quality problems that have evolved over the recovery.  For example, as temp work as a share of total employment has increased from 1.6% to 1.9% over the recovery, manufacturing’s share has declined, from 12.1% to 10.9%.

Despite the strong payroll expansion, there is still evidence of slack remaining in the job market.  The number of part-time workers who would rather work full time (a group that includes some temp workers) rose by 280,000 last month.  This helped push the underemployment rate (which includes these workers as wells as those who are unemployed) up from 9.4% in September to 9.7% in October.  Another indicator of the challenge still facing job seekers is the increase in the share of the long-term unemployed—those who have been seeking jobs for at least half a year.  This share grew to 22.2% of the unemployed last month, and has been trending up since August.

Even with this slack, wage growth has accelerated in recent months.  Hourly wages were up 2.6% over the past year, the fastest annual growth rate this year, though still just about even with inflation, which was up 2.5% most recently.

A strong jobs report like today’s begs the question: “Has a bona fide jobs recovery finally arrived?”  There are reasons for both optimism and caution in assessing this question.  Earlier this year, in March and April, we saw similarly large payroll gains, but this trend evaporated in the “soft patch” linked partly to rising energy costs.  Also, the return to a more normal growth rate in the labor force means that many more months like this one will be needed to lower the unemployment rate.  On the other hand, the recent slowing of productivity growth in tandem with decent gross domestic product and consumption growth may signal that the economy has arrived at a point when employers simply have to shed their cautious ways and start hiring in earnest.  On yet another hand (have I used up my hands yet?), this consumption growth was financed largely by borrowing, and that trend is not sustainable without continued strong growth of jobs and faster wage growth.

In other words, one month does not a new trend make.  While we can be cautiously hopeful, it will take more months with job gains of this magnitude to determine whether the ongoing recovery has finally reached the job market.

By Jared Bernstein with research assistance from Yulia Fungard

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