January 6, 2006
Job growth weaker than expected in December, closing out a year of moderate gains
According to today’s report from the Bureau of Labor Statistics (BLS), the nation’s payrolls rose by 108,000 in December, well below economists’ expectations of over 200,000 jobs. However, November’s revised gains of 305,000—an upward revision of 90,000 jobs—means that the pace of growth over the last two months has been about par for the year. Taking out the impact of the Gulf Coast hurricanes payrolls expanded at an average rate of about 200,000 per month in 2005.
Over a similar period in the last recovery, payrolls grew by nearly 300,000 per month. Thus, while the U.S. labor market is consistently generating job growth, the pace remains below that of past recoveries. For example, payrolls grew by 2 million jobs in 2005 (December 2004-December 2005). Over a similar period in the last recovery, payrolls grew by 3.5 million jobs. In percentage terms, payrolls grew 1.5% over the past year. The average over prior recoveries that lasted at least 49 months is twice that rate at 3.1%.
Comparing job growth in the current recovery to past recoveries of equal length (at least 49 months), job growth in the current recovery is the slowest on record:
Percent change in payroll employment, first 49 months of recoveries
The unemployment rate dipped slightly in December to 4.9%, and has been in the range of 4.9% to 5.1% since March of 2005. On average, unemployment was 5.1% in 2005, the lowest annual rate since 4.7% in 2001. However, one reason unemployment has remained relatively low—though still above the 4.0% rate of 2000—is the decline in the share of population participating in the labor force. This share, 66% last month, is down 1.2 percentage points from its peak in March 2001, and is unchanged relative to last December. This lack of upward movement in this key variable suggests that slack remains in the job market, i.e., job creation has not been strong enough to signal those who left the labor force to get back in.
Thus, while some economic analysts view a job market at 5.0% unemployment to be one close to “full employment,” the historically tepid rate of job growth in tandem with off-peak labor force participation suggest otherwise.
Turning back to the monthly results, most industries added jobs last month. Manufacturing payrolls have expanded for three consecutive months, including 18,000 jobs in December. For the year, however, factory jobs are down by 51,000. Jobs in retail trade continue to lag; after adjusting for the expected seasonal gains associated with the holidays, retail employment fell by 16,000 jobs in December. This may reflect lower demand at “brick and mortar” retailers due to a sharp rise in Internet sales this holiday season.
Construction employment fell 9,000 in December, but this should not be taken to signal the job impact of the cooling housing market. Over the year, jobs related to the housing boom (construction, real estate, and mortgage-related services) have been a consistent source of growth. Though the presence of a housing bubble in certain markets means there is clear downside risk to this trend in the coming year, December’s job losses in construction do not yet signal that occurrence.
Professional services also had a strong month, adding 33,000 jobs in December and up 486,000 jobs over the past year. About one-third of these jobs have been in the temporary help sub-sector, among the lowest paid jobs in business services; the other two-thirds have been in higher-paying, permanent positions, such as engineering and management services.
Last month’s Jobs Picture noted a significant spike in African American unemployment that appeared to be too large to signal a new trend. In December, that spike was reversed, and unemployment among blacks fell from 10.6% to 9.3%. The rate for black men, also 9.3%, was the lowest since September 2001. Clearly, the monthly data in this series are highly volatile.
Hourly earnings rose 0.3% in the month, but the revised increase for November was a slight 0.1% gain. Over the past year, hourly wages grew by 3.1%. As the job market has improved over the year, wage growth has accelerated, but has still remained below the rate of inflation, suggesting that most workers have been losing ground in real hourly pay. Due to a slight decline in weekly hours, weekly earnings grew 3.1%, year-over-year in December, compared to 3.3% in November.
The combination of relatively weak employment gains over the month in tandem with the modest decline in hours led to a slight 0.2% decline in total hours worked in the job market in December. On average in 2005, this measure of aggregate demand was up 2.4%, compared to 4.3% at this stage of the last recovery, another example of the relatively weaker demand prevailing today.
Today’s report continues a pattern that has prevailed throughout 2005, with strong job growth months consistently followed by weaker ones. Also, the addition of 2 million jobs, a 1.5% increase, over the year is unimpressive in historical context, as shown in the table above. Labor force participation also reveals continued slack. In sum, a substantial gap remains between job creation, earnings, and the productivity of the overall economy. The American job machine is no longer stuck in neutral, but neither has it shifted into high gear.
Today’s report was written by EPI economist Jared Bernstein, with research assistance from Yulia Fungard.
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