January 7, 2005

Payrolls up 157,000 for the month, 2.2 million for the year, but recovery still lags past experience

According to today’s report from the Bureau of Labor Statistics, the nation’s employers continued adding jobs in December, with payrolls up 157,000. This increase closes out the first year since 1999 with job growth in every month and confirms that the jobless recovery is safely behind us.  

That said, the rate of job growth continues to lag other recoveries. Over the year—December 2003 to December 2004—employment is up 2.2 million. While this is the best year for job growth since 1999, it still lags the 3.3 million jobs added at the analogous stage of the last recovery. On average over the past year, monthly employment grew by 186,000, compared to 272,000 at a similar stage of the 1990s recovery.

In fact, the average annual growth rate for payroll employment at this stage of a recovery is 2.8%, well above the 1.7% achieved this year. Had that average growth occurred this year, we would have added 3.6 million jobs since last December, 1.4 million more than the actual number. Thus, in historical context, the recent pace of job growth has been subpar.

Despite the fact that employment fell by over 100,000 in the more volatile survey of households, the unemployment rate held steady at 5.4% due to a similar decline in the labor force. Looking at annual averages, which helps to smooth out the volatility in the household survey, the labor force grew by 0.6% in 2004, the slowest growth rate since 1991. Had the decline in labor force growth not occurred, the unemployment rate would likely be higher, since only those actively looking for work are counted as unemployed.  

One corroborating sign that slow labor force growth is a function of relatively weak employer demand is the steady increase since the recession of 2001 in the number of persons not in the labor force who currently want a job. After falling about 6% per year between 1994 and 2001, this group has grown by about 5% annually since the recession began in March 2001.

Over the course of 2004, unemployment fell overall from 5.7% in December 2003 to 5.4% last month. Most groups experienced declines of this magnitude: the jobless rates for men and women are down by 0.2 and 0.4 points, respectively. The rate for white jobseekers is also down by 0.4 points over this period. However, for African Americans, the jobless rate over the past year is up from 10.2% to 10.8%, led by a large 1.8 percentage-point increase among black men, from 10.1% to 11.9% (the rate for African American women is down by 0.5 points over this period). This appears to be one group that has thus far not been helped by the end of the jobless recovery.

There were, on the other hand, numerous positive signs in today’s report. Unemployment duration—the time spent looking for work—declined, as the share of the jobless seeking work for at least half a year fell from 21.5% in November to 20.2% last month, the lowest level since January 2003. The number of involuntary part-time workers (those who would prefer a full-time job) also fell, and this helped to push down the underemployment rate, a measure which adds these workers to the unemployed (discouraged workers are also included). The underemployment rate (“U-6” in the BLS report) fell to 9.3% in December, 0.6 percentage points below last year’s level and the lowest level since October 2001.

It is also good news that most industries are adding jobs, though some laggards remain. Those with the largest gains include education and health services (47,000 last month) and professional and business services (up 41,000). In the latter case, it is notable that recent gains have occurred throughout the sector, not just in lower-paying temporary help as had been the case earlier in the recovery. Still, temp work, which represents about 15% of professional service employment, accounts for approximately 40% of the increase in jobs in that sector.

The recovery has yet to reach some key industries. Information services, an industry with relative high-paying jobs, lost 3,000 jobs last month, putting the total losses at 14,000 over the past year (December 2003 to December 2004). While this is a much smaller loss than occurred in either 2002 or 2003 (-117,000 and -232,000, respectively), the industry continues to mop up from the bursting of the technology bubble in late 2000. Retail trade employment was down 20,000 last month, ending the year on a worse trend than it began. On average, retail added 30,000 jobs per month between January and June 2004, but lost an average of 2,000 per month over the second half of the year.

Manufacturing reversed a three-month slide and added 3,000 jobs last month. Over the year, the nation’s factories added 76,000 jobs, the first calendar year gain since 1997. Still, manufacturing employment remains 3.2 million jobs down from its last peak in March 1998, signaling the ongoing structural difficulties of this key sector.

Finally, earnings data from today’s report reveal this to be an important trouble spot in the labor market recovery.  Relative to last December, the hourly wage is up 2.7%, likely below inflation, which was up 3.5% in the most recent data for November 2003 through November 2004. Wage growth started the year considerably slower than in 2003, and averaging over all of 2004, hourly earnings were up only 2.1%. This increase was well below inflation and marked the lowest growth rate for hourly earnings on record, going back to 1964.

The good news is that the jobless recovery is reliably behind us, and we just completed the best year for job growth since 1999. Most industries are expanding, though there are signs that employers have not fully abandoned their cautious hiring practices, especially relative to past recoveries. Had employment grown at its historical pace in the third year of an expansion, we would have added 1.4 million more jobs. Also, the remaining slack in the job market has led to wage growth that is uniquely weak in historical context. Thus, while the current level of job growth is likely enough to sustain an ongoing recovery, if that recovery is to reach more working families, much stronger employment growth will be needed in the coming months.  

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 JobWatch.org.

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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.