Economic Indicators | Retirement

Jobs Picture—December 3, 2004

December 3, 2004

November’s job growth much weaker than expected

The nation’s employers once again slowed their pace of hiring last month, adding only 112,000 jobs in November after adding over 300,000 in October.  Average hours per week declined slightly and wage growth was flat in a report from the Bureau of Labor Statistics that paints a far less optimistic picture of the labor market than was reflected in last month’s report. 

Economists were expecting a gain of closer to 200,000 jobs, coming off October’s strong showing, but these hopes were dashed by November’s numbers, which indicated the lowest monthly gain since July.  Payroll gains from September and October were revised down by a total of 54,000.  Through May this year, employers were adding 225,000 jobs per month, on average.  Since June, job growth has averaged 152,000. 

While this level of growth confirms that the jobless recovery is safely behind us, it is insufficient to erase the jobs deficit and existing labor slack that remain a feature of our labor market. 

Unemployment dipped slightly to 5.4%, as strong employment gains in the household survey were matched by continued labor force growth.  After contracting by a total of 370,000 in August and September, over the past two months the labor force has expanded by over 800,000.  Given the monthly volatility of these numbers, we cannot yet determine whether a new, faster growth trend is underway.  But if the labor force does continue to expand at this faster rate, we will need to ratchet up the pace of job creation to meet this increase in labor supply and prevent unemployment from rising in coming months.

Job growth by industry last month reveals weak demand in some key sectors.  Manufacturing employment fell slightly, by 5,000, exclusively in the higher paying durable manufacturing industries (driven by job losses in computer production and automobiles).  After a few months of significant job gains last spring, employment in the nation’s factories has failed to expand, despite the decline in value of the dollar, which should boost the exports of U.S. manufactured goods by lowering their price in international markets.  Thus far, however, such gains have presumably been held back by weak demand from abroad, currency manipulation by our large Asian competitors, and high productivity growth in the manufacturing sector.

Another important indicator of slack in the current job market comes from the retail sector, where employment fell by 16,000 last month, largely reversing the previous month’s gain of 17,000.  This decline, however, adjusts for the addition of a significant number of seasonal retail employees; non-seasonally-adjusted retail employment was up by 293,000 last month. But this seasonal gain is the smallest for November going back to 1993, and in percentage terms, the smallest going back to 1989, suggesting a particularly weak hiring season at the nation’s retailers.  An important caveat here is that the increase in online buying may show up as reduced demand for retail employment, particularly if these jobs are “outsourced” to firms outside of retail.

Professional services continued to expand, adding 28,000 jobs in November.  While this is well behind October’s pace of 100,000, a positive sign here is that most of these professional jobs were outside of the temporary employment sub-sector, and thus in higher paying areas.  Health, education, and construction continue to be consistent growth sectors.  Conversely, job growth in information services, a sector of higher quality jobs with an hourly wage 37% above the overall average, remains stuck in neutral.  The sector added no jobs in November, as has been the case so far this year.  Relative to the pre-recession employment peak (March 2001), jobs are down in this sector by 555,000.

An ongoing corollary to the persistence of weak job creation is the length of time spent searching for work by the unemployed.  Both the median and average spells of unemployment increased last month, with the average up to 19.9 weeks, the highest level since June.  More than a fifth (21.7%) of the unemployed have been jobless for at least half-a-year—this indicator has been above 20% since October 1992, the longest such spell on record.

Wage growth was essentially flat in November, with hourly wages up $0.01.  In tandem with the one-tenth-of-an-hour decline in average weekly hours worked, this led to a $1.25 decline in weekly earnings.  Compared to a year ago, hourly wages not adjusted for inflation have grown by 2.4%, an elevated pace compared to the 2.0% growth rate over the first half of this year.  However, inflation has also picked up and was running over 3% in October.  In fact, through October, hourly wages after adjusting for inflation were flat or falling in eight of the prior twelve months.

November’s weaker-than-expected job growth, in tandem with the decline in hours worked and flat wages, poses downside risk for the ongoing recovery (aggregate hours, an indicator of macroeconomic growth, fell by 0.2% in November).  Given the reversal of monetary stimulus as the Fed continues to slowly raise interest rates, the fading of fiscal stimulus, and the high level of indebtedness among both households and the federal government, we are ever more dependent on a robust jobs recovery to fuel growth in household income and consumption.  Despite a few good months, such a recovery simply has not yet occurred in the job market.  In fact, at 5.4%, the unemployment rate is stuck at about the same level it was when this recovery began three years ago, in November 2001, when unemployment was 5.6%.  Until the recovery more convincingly reaches the job market, it will be difficult for consumers and investors to build the confidence necessary to lift the economy to its full potential.

By EPI senior economist Jared Bernstein with research assistance from Yulia Fungard.

For more information on the most recent job and wage data, go to EPI’s web feature

To view archived editions of JOBS PICTURE, click here.

The Economic Policy Institute JOBS PICTURE is published each month upon release of the Bureau of Labor Statistics’ employment report.

EPI offers same-day analysis of income, price, employment, and other economic data released by U.S. government agencies. For more information, contact EPI at 202-775-8810.

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