December 8, 2006 (Jobs Byte)
By Dean Baker
Nominal wage growth slowed to 3.55 percent.
The establishment survey showed the economy adding 132,000 jobs in November, bringing average growth over the last three months to 138,000. Private sector employment growth has averaged 104,000 over this period, as the government sector has been adding 34,000 jobs per month.
The overall employment picture in this report is mixed. Manufacturing lost 15,000 jobs in November and is now down 95,000 jobs (all production workers) from its peak in June. The job decline is compounded by a fall in the average workweek. As a result, hours in manufacturing have been declining at a 4.6 percent annual rate over the last 4 months.
Construction was also hard hit, losing 29,000 jobs in November, after losing 24,000 jobs in October. This is the largest 2-month decline since the sector lost 70,000 jobs in April-May of 2002. All sectors of construction employment are now shedding jobs, although the residential sector has been most affected, losing 110,000 jobs since its February peak.
The loss of jobs in the goods producing sector was offset by healthy job growth in services. The retail sector added 20,400 jobs, its largest gain since November of 2005. The financial sector added 11,100 jobs. Remarkably, 5,400 jobs were added in real estate. Employment in this sector is up by 23,000 from year ago levels, even though sales are down by more than 15 percent and prices are falling.
Other big job gainers were professional and business services (43,000), education and health services (41,000) and restaurants (33,600). Interestingly, employment in temporary agencies remains virtually flat; it is down by 20,000 from its year ago level.
The household survey showed little change from October. The unemployment rate was virtually unchanged at 4.5 percent, with the employment rate remaining at 63.3 percent. There were no major changes in unemployment rates among demographic groups. There were modest increases in the median duration of unemployment spells and the percentage of long-term unemployed, but the average duration of unemployment spells edged down.
While the labor market is reasonably healthy, the economy is still far off its 2000 peaks. The employment to population ratio (EPOP) peaked in April of 2000 at 64.7 percent, 1.4 percentage points above its current level. The difference is sharpest for black teens, who saw their EPOP peak at 31.2 percent in February of 2002, compared to 24.2 percent this November.
One sign that suggests the labor market is weakening is a drop in the share of unemployment attributable to workers who voluntarily quit their jobs. This can be a useful measure, since people will be reluctant to quit their job unless they are confident that they can find a new one. This measure stood at 11.6 percent in November, down from 12.1 percent in August. By comparison, it peaked at 15.2 percent in April of 2000.
There is also some evidence in this report that wage growth is slowing. Nominal wage growth increased at a 3.55 percent annual rate over the last quarter. This compares to a 4.05 percent rate of wage growth over the last year.
The recent data have shown large gaps between employment growth as measured in the household survey and jobs in the establishment survey. The household survey shows a year over year increase in employment of 2,953,000 workers, while the establishment survey shows an increase of 1,787,000 jobs. (This gap will be reduced by about 270,000 with the benchmark revision to the establishment survey.) The establishment survey is almost universally regarded as the more accurate measure of employment because of both its size and design. It is also worth noting that in the most recent data available, Social Security tax collections had been tracking the data in the establishment survey closely.
While the November employment report still paints a healthy picture of the labor market, there are serious grounds for concern about the months ahead. The weakness in the housing sector is just beginning to hit the labor market and it is being compounded by serious weakness in manufacturing. The fact that wage growth appears to be weakening makes it unlikely that the economy can overcome these sources of weakness.