June 3, 2005 (Jobs Byte)
Job Growth Weak in May, but Household Survey Shows Strength
June 3, 2005
By Dean Baker
The establishment survey showed an increase of just 78,000 jobs in May, far below most analysts' expectations. However, the household survey showed some evidence of a strengthening labor market, most importantly a rise in the employment to population (EPOP) ratio to 62.7 percent. This is the highest level the EPOP has reached since it was at 62.8 in April of 2002. Even with this increase, the May EPOP is still 2 full percentage points below the 64.7 peak in April of 2000. This decline in the EPOP corresponds to 4.5 million lost jobs.
Other data in the household survey were also largely positive. The average duration of unemployment spells fell by 0.8 weeks to 18.8 weeks, and the share of the long-term unemployed in total unemployment fell to 20.1 percent, the lowest percentage since October of 2002. The share of unemployment attributable to workers who voluntarily quit their jobs, which is generally viewed as a gage of workers' confidence in the strength of the labor market, rose to 12.3 percent, the highest level since August of 2001.
The data in the establishment survey is considerably less encouraging, although the meaning of the falloff in job growth should not be exaggerated. The 274,000 new jobs reported in April almost certainly overstated true job growth for the month, thereby leading to a lower reported rate of job growth for May. Over the last three months the rate of job growth has averaged 158,000, which is probably the best measure of where the economy stands at the moment.
The only sectors that continued to show healthy job growth in May were construction and the education and health sector. Construction added another 20,000 jobs (all in residential construction, the non-residential sector lost jobs). Construction has accounted for 14.1 percent of the job growth over the last year. The education and health sector added 40,000 jobs, somewhat better than the monthly average of 31,000 over the last year.
Professional and building services lost 1,000 jobs after adding 33,000 in April. Leisure and hospitality lost 6,000 jobs after adding 63,000 in April. And information services lost 8,000 jobs after adding 15,000 in April. In all three sectors, the April figures probably overstated job growth causing May to appear weaker than it actually is.
Manufacturing employment continued its downward path in May, losing another 7,000 jobs. The sector has lost 22,000 jobs since February. Apparel accounted for 9,000 of these lost jobs. Employment in the sector is down 14.8 percent from its level a year ago and an incredible 68.8 percent from its level of 10 years ago, having fallen from 828,000 in May of 1995 to 258,000 this month. Clearly imports are the main factor in this decline.
Apart from weak May job growth figure, the establishment survey provides other evidence that the economy is in fact weakening. The average workweek was revised down by 0.1 hours for April and remained at the same level in May. The index of total hours is still 1.3 percent below its peak in October of 2000. The temporary employment sector, which is often seen as a harbinger of future job growth, lost 4,000 jobs in May. Employment in the sector now stands just 4,000 above its February level.
Perhaps most importantly for the future health of the economy is the fact that wage growth continues to seriously lag inflation. Nominal wage growth has averaged 2.7 percent over the last quarter, virtually the same as the 2.6 percent rate of growth over the last year. During the last quarter, the CPI has risen at a 6.2 percent annual rate, driven largely by higher gas prices. Since May 2004, the CPI has risen by 3.5 percent, implying a drop in the real average hourly wage of almost a full percentage point over the last year.
If wages continue to lag inflation, then workers will be forced to curtail their consumption. The housing bubble has allowed for a splurge in borrowing, which has partly offset the weakness in wage growth, but this is not likely to continue for very much longer.
Dean Baker is Co-Director of 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.