December 8, 2006
Service sector employment gains in solid jobs report; manufacturing and construction lose jobs
By Jared Bernstein, with research assistance by Yulia Fungard
The nation’s payrolls expanded by 132,000 jobs last month, according to today’s report from the Bureau of Labor Statistics. Unemployment ticked up slightly to 4.5%, in a jobs report characterized by solid employment gains in service industries and losses in factories and construction.
With upward revisions of 42,000 to October and September’s job gains, the average monthly gain this year has been 149,000, about the level needed to keep the labor market expanding apace and prevent unemployment from rising. In fact, the jobless rate has been at or below 5% since last October.
Today’s report generally reflects ongoing dynamics in the overall economy. Employment in residential housing continues to contract, down 15,500 (combining builders and contractors), reflecting the slumping housing market with its large inventory overhang. One additional concern from today’s report is the decline in employment associated with non -residential building, as positive job growth here helped to offset residential losses in earlier months.
Factory employment declined by 15,000 in November, the fifth consecutive month of job losses in manufacturing. The losses were driven largely by wood products (down 5,900)—an industry that provides inputs for the lagging construction sector—and autos (down 8,300), where weak demand and excess inventory are also constraining hiring.
On the other hand, service employment growth continues to be robust, with private services (excluding government in order to take a more accurate pulse of market-driven demand for services) up 154,000 in November. Businesses in professional services (engineering firms, legal services, computer systems design) continue to expand employment, adding 43,000 last month. Jobs in health care, up 27,700 last month, also continue to be a steady source of growth.
Another positive sign comes from retail trade, a steady underperformer in recent months. Retailers added 20,000 jobs last month, however, the best month since last November. While retailers always expand employment in the run up to the holidays, these data are adjusted for such seasonal effects, meaning this gain is above that expected addition.
One standout weak sector in services is information, including two sub-industries that appear to be undergoing continuing restructuring: publishing and telecom. Over the course of the recovery that began five years ago, telecom, a victim of the bursting internet bubble, is down 280,000 jobs and publishing (non-internet) has lost 91,000 jobs, in part due to internet competition.
Employment indicators from the survey of households were largely positive in November. Though the share of long-term jobless persons (unemployed for at least half-a-year) ticked up last month to 16.8%, this indicator of job creation has trended down since its peak of 23.7% in March 2004. The underemployment rate, a more inclusive measure of job market activity than the unemployment rate—it includes involuntary part-timers and discouraged workers (those who recently looked for work but gave up)—was 8%, tied with September for the lowest rate since July of 2001.
Turning to wages, the hourly wage rate for blue-collar production workers and non-managers in services is up 4.1% over the past year, a growth rate ample enough to solidly surpass recent inflation readings that have been well below 2% (weekly earnings were up 4.4% over the past year).
Are wage gains of this magnitude inflationary? While this is a stated concern of the Federal Reserve, wage-push inflation is an unlikely threat for four reasons. First, recent real wage gains have come almost exclusively from slower price growth, not faster wage growth. Nominal hourly wages have expanded at a year-over-year rate between 3.8% and 4.1% since the summer. Second, annualizing three-month changes, hourly wage growth has decelerated in recent months, from 4.7% in August to 3.1% in November. Third, firms’ profit margins remain historically very high, meaning businesses could afford non-inflationary wage gains yet maintain solid, as opposed to excess, profitability. Finally, most forecasts are for the overall economy to continue growing below trend, likely taking any pressure off wage growth in coming months.
Finally, while today’s report is upbeat outside of the troubled sectors noted above, with this release, we now have employment data through the first five years of the current recovery, which began in November 2001. Over the history of the payroll data series, there are four economic recoveries that have lasted this long. As shown in the Figure, job growth in this recovery was the slowest by far. (Note: the figure and the percent changes that follow include the benchmark revision’s addition of 810,000 jobs over the current recovery announced a few months back.)
Each series shows percent changes relative to the month in which the recovery began (the same month the recession ended). Over the five years of this recovery, payroll employment is up 4.5%, compared to growth rates of 17.3%, 16.4%, and 9.5% in the other recoveries. Note that while the 1990s recovery also had an early “jobless” phase, at this point—five years out—employment growth was more than twice that of the current expansion. This uniquely weak performance in employment growth is one reason why the benefits of the expansion have been slow to reach many working families, who are only now beginning to see some real gains.
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