June 1, 2007 (Jobs Byte)
Economy Adds 157,000 Jobs in May
June 1, 2007
By Dean Baker
The household survey shows a 14,000 drop in employment in 2007.
The establishment survey showed the economy adding 157,000 jobs in May, somewhat more than had generally been predicted. The household survey showed the unemployment rate holding steady at 4.5 percent, but it showed other evidence of a weakening labor market.
Monthly data are always erratic, so when the employment to population ratio (EPOP) fell from 63.3 percent in March to 63.0 percent in April, it could be dismissed as a fluke. However, the EPOP remained at 63.0 percent in May, indicating that the drop was real. At this level, the EPOP is 1.7 percentage points below the peak hit in April of 2000. In fact, it is much closer to the 62.0 percent EPOP at trough of the downturn in September of 2003.
EPOPs have edged down for most demographic groups, but the sharpest decline has been for black teens. Their EPOP was just 21.5 percent in May. This compares with a cyclical peak of 25.9 percent in October. The current EPOP for black teens is almost one-third below peaks of more than 31.0 percent reached in 2000. There appears to be a falloff in the EPOP for Hispanics, with 64.6 percent rate reported for May - more than a full percentage point below the 65.8 percent rate reported for December.
Older workers continue to work in high numbers. Employment among people over age 55 rose by 270,000 in May, more than the 157,000 increase in total employment shown in the household survey. Over the last year, workers over age 55 accounted for 54.6 percent of the growth in employment, with just under 60 percent of this growth coming from older women. Married women more generally have entered employment in large numbers, accounting for 52.9 percent of employment growth over the last year.
It is worth noting that the household survey has shown considerably slower employment growth than establishment survey this year, with employment actually falling by 14,000 since January. Virtually all economists view the establishment survey as the better measure of employment, but some analysts have recently argued that the household survey gives a better picture of the current employment situation.
Other data in the household survey were mixed. The average and median lengths of employment spells fell, but the number of people involuntarily working part-time rose to the highest level in almost two years. The number of discouraged workers was also substantially above its year ago level.
The story in the establishment survey is also mixed. The rate of job creation was respectable, but it was narrowly concentrated. The health and education sector, combined with the restaurant sector, accounted for 57.5 percent of private sector job growth in May and 91.6 percent of the growth reported over the last two months.
This is especially troubling since the number of jobs imputed into these sectors for new firms not captured in the survey is actually larger this year than for the same two months in 2006, when the economy was almost certainly growing more quickly. It seems likely that this imputation is now causing the establishment survey to overstate employment. This is likely the case with residential construction, where employment is down just 3.8 percent from its year ago level, even though construction is down by more than 15 percent.
Most sectors showed little change in employment, although manufacturing lost another 19,000 jobs, driven largely by a loss of 9,900 jobs in the auto sector. Over the last year, the auto sector has shed 76,400 jobs, 7.1 percent of employment. Weak job growth is translating into weaker wage growth, with the average hour wage rising at just a 3.2 percent annual rate over the three months, well below inflation.
This report gives serious grounds for questioning the strength of the economy going forward. The labor market clearly has weakened over the last year. With homes prices now flat or falling, more homeowners are going to lose their ability to borrow against their home equity (equity to value ratios are at record lows), but wages are again falling behind inflation, so workers will not be able to sustain consumption growth without going deeper into debt.
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