March 7, 2008

Jobs numbers spell recession

by Jared Bernstein with research assistance from James Lin

In what is the most recessionary jobs report since the last official downturn in 2001, payrolls fell 63,000 last month and were down 101,000 in the private sector, according to today’s report from the Bureau of Labor Statistics. Unemployment actually ticked down slightly, from 4.9% to 4.8%, but this was wholly due to labor force withdrawal. Employment in the more volatile survey of households—the one from which the unemployment rate is drawn—fell over 250,000.

The payroll contraction was the largest loss in almost five years.

The report is replete with evidence that the troubled, if not contracting, economy has reached the job market:

• Payroll employment has now contracted two months in a row and three consecutive months in the private sector (since government tends to be less cyclically sensitive, private sector job growth is a more reliable barometer).
• December and January payroll counts were revised down by 46,000.
• The labor force contracted sharply; the share of the population in the workforce fell from 66.1% to 65.9%; the share of the population employed is down 0.5 percentage points compared to one year ago.
• Had the 450,000 people who left the labor force last month been counted among the unemployed, the jobless rate would have been 5.1% instead of 4.8%.
• Most industries shed jobs last month; a measure of industry hiring activity is at its lowest level in almost five years.
• Employment contracted in core service industries, including retail sales and offices.
• In a clear recessionary signal, employers are shedding temporary workers: employment in the sector was down 28,000, the largest loss in five years.
• The number of part-time workers who would prefer full-time jobs—a measure of underemployment—is up over 600,000 over the past year.
• Both employment and total hours worked in the economy are contracting in traditional recessionary patterns.

Once again, despite recently increased exports of manufactured goods, factory employment fell sharply last month, down 52,000. Moreover, losses in the sector were concentrated in durable goods—bigger ticket items like autos and steel. Economists have been hoping that rising exports would begin to show up, if not as job gains in manufacturing, at least as slower losses. To the contrary, factory job loss has accelerated—last month’s loss was the largest since July 2003.

The housing market meltdown continues to take its toll on the residential construction sector, which shed 26,000 jobs last month, including building and contracting. What is new here, however, is that slight losses have begun to show in non-residential construction as well, down each month since its peak last September. If this slide continues or deepens, hopes that non-residential building will offset residential losses will be dashed.

EPI’s index of housing and related employment, including real estate and credit providers, is down 540,000 since its peak in April 2006.

Both hourly and weekly earnings grew 3.7% over the past year, below the pace of inflation. Regarding inflation, it is also notable that nominal hourly wages have grown at this same annual rate—3.7%—for the past three months, suggesting no inflation wage pressures. In fact, as the job market weakens future, wage growth will likely slow.

At this point, we can be fairly certain that once the recession is officially recognized, it will include last month. Historically, once payrolls begin to grow less than 1% on a yearly basis and contract on a monthly basis, the economy has been in and is headed for recession.

However, whether or not we are in an official recession is largely an academic question. As jobs become less available and more potential workers leave the job market, family incomes will be increasingly constrained, with recessionary implications for both their own living standards and the macro-economy. Policy makers need to 1.) quickly acknowledge that the private sector engine of job growth is moving from stall to reverse and take further steps to restart it, and 2.) ensure that the safety net, particularly the Unemployment Insurance system, is ready to meet the needs of workers displaced by the downturn.

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.