February 4, 2005
Employment growing, but labor slack remains
The nation’s payrolls increased by 146,000 last month, and the unemployment rate fell to 5.2%, its lowest level since September 2001, according to today’s report from the Bureau of Labor Statistics.
The decline in the unemployment rate was, however, due to a fall in the labor force participation rate (LFPR) from 66.0% to 65.8%, the lowest LFPR since May 1988 and 1.5 percentage points below its most recent peak in April 2000.
Given today’s adult population, this translates into 3.4 million fewer persons in the job market. Since only active jobseekers are counted in the official unemployment rate, this long slide in the LFPR has artificially depressed the jobless rate, which would be higher if some of those who left the job market were actively looking for work.
As of last month, payroll levels have finally surpassed their pre-recession peak. In February 2001—the month before the recession was declared to have begun—payrolls stood at 132,546,000. Thanks in part to revisions which added 161,000 to the December job count, payrolls stood at 132,573,000 last month, 27,000 jobs above the last peak. (Note, however, that this is due to the growth of government employment; private sector employment remains 703,000 jobs below its pre-recession level).
As shown in the chart, this is the longest slump of this sort on record. On average, it has taken 21 months to surpass the prior employment peak after a recession. In this case it took 46 months.* As the chart reveals, the employment peak of the early 1990s jobless recovery was regained in 31 months, more than a year sooner compared to the current case.
This pattern of slow employment growth continues unabated. The addition of 146,000 jobs was again below expectations, as analysts anticipated about 190,000 net new jobs last month. Since last June, payrolls have grown an average of 150,000 per month, about half the monthly average of 302,000 in March through May of 2004.
Though some job-market watchers have crowed about the recent pace of job growth—the president noted in his State of the Union address that “in the last year alone, the United States has added 2.3 million new jobs”—this is well below the historical pace of job growth at this stage of a recovery. Over the past year (since January 2004), payrolls are up by 1.7%; in the last jobless recovery, they were up by 3% at this stage, which is about equal to the historical average of 3.2%. Had we done as well over the past year as in the last recovery, we would have added 3.9 million jobs, an improvement of 1.7 million over the actual record.
Last month, employment growth was once again concentrated in services, as the nation’s manufacturing sector continued to shed jobs. Factory employment was down by 25,000 in January and has fallen for the last five months. The BLS attributed this to an unusually high level of seasonal shutdowns by automobile manufacturers, but employment in lighter manufacturing (non-durables such as textiles and food) also contracted by 13,000.
Service employment growth was broad-based with every major sector contributing. Business services added 25,000 jobs, but 17,500 were in temporary help, a sign that employers remain uncharacteristically cautious regarding permanent hires even at this stage of the recovery. Education and health services continue to be reliable growth industries. In fact, in a symbol of its singular importance in today’s labor market, BLS now includes a separate line for health care in its monthly report.
Hourly wages were up slightly over the month, but a slight decline in hours worked led to a $0.57 reduction in weekly earnings. Over the past year, hourly wages are up 2.6%. Given that recent readings of price growth have surpassed 3%, real earnings are declining for the workers covered by this wage measure, specifically blue-collar manufacturing workers, and non-managers in services.
This last point is critical for understanding ongoing constraints in the U.S. labor market. Employment is reliably growing, albeit down significantly from its historical pace, and the unemployment rate is falling, in part due to diminished participation in the labor force. In fact, at 5.2%, the unemployment rate is at the level considered full employment by the Congressional Budget Office (CBO). Yet, as can be seen in today’s report, the U.S. labor market has far more slack than the CBO designation implies. Employment growth is lagging, wage growth is well below that of prices, and employment rates—a measure of labor demand—remain far below their peak levels (since the recession, they are down 1.9 points overall, 4.1 points for black men, and are even down 1.2 point for college graduates).
Clearly, job market conditions are still mixed, and labor slack remains. The recovery is well-underway, but it has yet to reach many working families.
By EPI Senior Economist Jared Bernstein, with research assistance from Yulia Fungard.
* This comparison uses the official NBER peak date of March 2001. Using the employment peak of February 2001 would mean it took 47 months to regain the jobs lost.
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.
