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Labor Market Shows Strength in November

December 2, 2005 (Jobs Byte)
Jobs Byte

Labor Market Shows Strength in November

December 2, 2005
By Dean Baker

Nominal wage growth has accelerated from 2.5 percent to 3.5 percent.

The November employment report indicates that the economy is adding jobs at a solid pace and that workers may finally be poised to experience real wage gains. The establishment survey data showed the economy adding 215,000 jobs in November. While hourly wage growth was just 0.2 percent in November, the wage numbers for October were revised up to show a 0.6 percent gain. With the recent declines in gas prices, this pace of wage growth should translate into healthy gains in real wages.

The November job gains put average job growth over the last three months at 92,000. Data from the household survey imply a direct job loss from those displaced by Hurricane Katrina at close to 180,000. This implies that the economy would have added more than 150,000 jobs per month over this period, even assuming that there was no indirect job loss from the hurricane.

With the recovery efforts, construction continues to be a leading growth sector, adding 37,000 jobs. Construction has accounted for 32.0 percent of the jobs created in the last 3 months. The financial sector also continues to be a major source of job growth. While it added only 13,000 jobs in November, the sector has added 57,000 jobs over the last 3 months, accounting for 20.5 percent of job growth over this period.

Retail employment showed relatively weak job growth of just 8,500. However, this may be explained by changing seasonal employment patterns, with stores adding fewer workers for the holidays than in prior years. The last two years also showed weak retail employment growth in the holiday season, which was followed by big jumps in January and February. Similarly, a weak gain of 5,200 temporary jobs is probably attributable to a big jump reported in September. The sector has added 42,000 jobs in the last 3 months.

Manufacturing employment showed an impressive turnaround, adding 16,000 jobs over the last two months after losing 106,000 jobs over the prior year. Even more striking has been the turnaround in employment for production workers, which has risen by 52,000 over the last 2 months and by 128,000 since bottoming out in February of 2004. Over the last two decades, production workers had taken the brunt of job loss in manufacturing as these relatively less-skilled jobs were sent overseas, while the typically more skilled managerial jobs remained in the United States. The recent data provide some evidence that this pattern may be reversing.

Most of the data in the household survey are consistent with this picture of a strengthening labor market. The overall unemployment rate remained unchanged at 5.0 percent. While most demographic groups saw little change in their unemployment rates, the unemployment rate for African Americans jumped by 1.5 percentage points to 10.6 percent. The unemployment rate for African American teens jumped by 5.9 percentage points to 39.2 percent, its highest level since May of 1994. While these data are highly erratic, changes of this magnitude could reflect a real deterioration in the labor market conditions for African Americans.

Most of the other data in the household survey indicated labor market strength. The number of people involuntarily working part-time fell sharply for the second consecutive month. The average and median duration of jobless spells both declined, as did the percentage of the unemployed who have been without jobs for more than 27 weeks. The percentage of unemployment attributable to people who have voluntarily quit their jobs nevertheless remained near the high for this recovery.

However, the biggest story in the employment report is the uptick in wage growth. Nominal wages have grown at a 3.5 percent annual rate over the last quarter. This is up from just a 2.5 percent annual rate in the first half of the year. This suggests that workers are taking advantage of a tighter labor market to secure wage gains. Wages had lost considerable purchasing power over the last year and a half due to higher energy prices, but with gas prices plunging in the last month, and wage growth accelerating, workers may finally be poised to get a share of the gains from the recovery.

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. 

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