August 3, 2007 (Jobs Byte)
By Dean Baker
Healthcare and restaurant employment account for almost 60 percent of private sector job growth since March.
The establishment survey showed the economy adding just 92,000 jobs in July, the weakest performance since February. However, the data are distorted by the timing of summer breaks for public school teachers. The private sector added 120,000 jobs in July, roughly the same pace as the prior two months. However, this growth is not fast enough to keep up with labor force growth. The unemployment rate edged up to 4.6 percent (4.647% before rounding). It had been at 4.4 percent in March.
While the rise in unemployment is very modest, drops in employment rates suggest that many workers are having difficulty finding jobs. The overall employment to population (EPOP) ratio edged down 0.1 percentage points to 63.0 percent in July; it had been at 63.3 percent in March. This drop is hitting prime age workers, with the EPOP for workers ages 25-54 falling from 80.3 percent in January, to 79.8 percent in July, 2.1 pp below the 81.9 percent peak in April of 2000. Within this group, workers ages 35-44 are seeing the largest falloff in EPOPs, dropping 1.0 percentage point (81.5 percent to 80.5 percent) since January. The decline for men in this age group was 1.1 pp compared to 0.8 pp for women.
Employment rates among older workers continue to rise. The EPOP for workers ages 55-64 is now 61.7 percent, 3.5 pp above the peak in 2000. Workers over age 55 accounted for 50.2 percent of the employment growth since April.
Other data suggesting weakness in the household survey were increases in all the measures of unemployment duration. Most notably, the median length of unemployment spells increased by 0.7 weeks to 8.9 weeks, the longest since February of 2006.
There were few surprises in the establishment data. A downward revision to June construction employment eliminated most of the job gains reported last month, and the downward trend continued with a loss of 12,000 jobs reported in July. However, most of this loss was in the non-residential sector, which has been showing strong growth. Residential construction lost just 1,600 jobs. Reported employment in the sector is down just 3.4 percent over the year, even though residential construction has fallen by close to 20 percent.
The manufacturing sector lost 2,000 jobs, with a small decline in non-durable employment outweighing a small gain in the durable goods sector. Retail trade also showed modest job loss, shedding 1,200 jobs.
The health and education sector continued to lead the way in employment growth, adding 39,000 jobs in July. This sector has accounted for 30.7 percent of the private sector job growth over the last year and 36.6 percent of the growth since March. Restaurants were also a big job creator, adding 22,200 jobs. They have accounted for 23.2 percent of private sector growth since March.
The employment services sector was a big job loser in July, shedding 20,500 workers. This sector has lost 132,000 jobs since December. Insofar as temporary employment is an advance indicator of employers’ intentions for permanent hires, this is not a good sign. Along these lines, the 3-month employment diffusion index, which shows the percentage of industries in which employers intend to add jobs over a specified period, fell to 55.6, the lowest level since October of 2005.
In spite of the slow pace of job growth in recent months, wage growth may be picking up slightly. The average hourly wage has grown at annual rate of 4.25 percent over the last three months (compared with the prior three months). This compares with a 3.93 percent rate over the last year. This pace is fast enough to allow workers modest real wage growth.
On the whole, the July report shows a picture of an economy that is slowing down. Job growth is not fast enough to keep pace with the growth of the workforce and this is leading to declining employment rates among prime age workers and modest increases in unemployment. However, wages are rising at a respectable pace. While this is good news for workers, with the slowdown in productivity having reached the three year mark, it may be a concern for the Fed.
Dean Baker is the Co-director of the Center for Economic and Policy Research.
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