February 4, 2005 (Jobs Byte)
At 146,000 New Jobs, Growth Remains Weak Compared to Previous Recoveries
February 4, 2005
By Heather Boushey
The economy produced 146,000 new jobs in January 2005 and the unemployment rate fell from 5.4 to 5.2 percent. Unemployment fell because the labor force fell by 224,000, while employment grew by only 85,000. This report provides further indications that the recovery in the labor market remains weak: the employment rates and job creation remain low and wages continue to fall.
In January, the employment-to-population ratio-the share of the population with a job-was 62.4, unchanged from December. This remains well below the 64.4 percent rate of January 2001. Young workers have been hit especially hard by declining employment rates. The number of workers between ages 16 and 19 that were employed was 36.3 percent, a figure that has been roughly constant for the last 18 months. This is 8.3 percentage points lower than in January 2001.
Employment growth remains relatively weak, compared to the expansion of the 1990s. Although there were across-the-board increases in service sector employment, manufacturing and construction declined. Manufacturing lost 25,000 jobs last month. This is the fifth straight decline, bringing job loss to 61,000 since August.
The temporary help sector showed a relatively strong gain of 17,500 new jobs, but this follows two months of near zero growth.
Hours worked have not been increasing, however, indicating that employers are not needing to work their current employees more. Over the past month, the index of hours worked decreased by 0.1, down to 101.4. This remains 2.2 percent below the January 2001 level, the most prolonged decline in hours since the depression.
Further, the diffusion indices continue to show weakness. The share of firms indicating intent to hire over the next six months has fallen to 58.8 percent, from a high of 69.6 percent back in June.
Since the peak in November 2003, real hourly wages have declined by 1.2 percent, for an annualized rate of 1.1 percent. Falling wages not only affect well-being, but also aggregate demand since consumption drives about two-thirds of the economy. If wages continue to fall at the rate they have fallen since November 2003, the economy would have to create 5.9 million net new jobs over the next year in order to see the kind of demand we had during the late 1990s.
There are other indications that the labor market remains weak for job-seekers. The share of the unemployed who have been out of work more than six months (and have thereby typically exhausted their unemployment insurance benefits) remains high at 20.9 percent. This indicator has remained above 20 percent for 28 months. Further, the number of workers who have dropped out of the labor force because they were discouraged by their job prospects rose to 515,000, a peak for this economic cycle.
This month's report includes benchmark revisions to the establishment data and population revisions to the household survey. The BLS does this revision each year based on the unemployment insurance tax records from the previous March. Typically, the revisions will be upwards during economic recoveries because the projections of the "birth" of new firms will have been underestimated during the course of the prior year. For 2004, the revisions were only 156,000, smaller than expected.
Some economists have argued that the establishment survey has been underestimating employment compared to the household survey. The problem with this argument is that the establishment data are benchmarked each year to the universe of employers through tax records. Further, current trends now reveal that the household survey was likely overstating employment: over the past year, the household survey now shows job creation of 1,760,000 while the establishment survey shows job creation of 2,201,000 new jobs.
Some economists have further argued that slow job creation in the establishment data is because of gains in self-employment, which is not captured by the establishment survey. However, over the past year, self-employment has increased by just 39,000 jobs, a 0.4 percent increase, indicating that slow job creation is not being compensated for by increased self-employment.
Heather Boushey is an economist at the Center for Economic and Policy Research in Washington, D.C.
CEPR’s Jobs Byte is published each month upon release of the Bureau of Labor Statistics’ employment report.