CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Data Bytes Jobs Bytes Slow Job Growth Leads to Rising Unemployment

Slow Job Growth Leads to Rising Unemployment

August 4, 2006 (Jobs Byte)
Jobs Byte

Slow Job Growth Leads to Rising Unemployment

August 4, 2006
By Dean Baker
The labor market showed further signs of weakening in July, adding just 115,000 jobs. This is the fourth consecutive month of weak job growth, with the economy adding just 402,000 jobs since March. A rate of job growth of 100,000 per month is not sufficient to keep the unemployment rate from rising. Not surprisingly, the unemployment rate edged up to 4.8 percent in July.

There were few sectors showing any real strength in the July report. Construction added 6,000 jobs, but this follows a loss of 4,000 in June. Employment in the sector has been virtually flat since February, as a loss of 37,000 jobs in residential construction has been offset by gains in non-residential construction. Manufacturing employment fell by 15,000 in July, largely offsetting a gain of 22,000 in June. An interesting story in this sector is the shift to production employment. The number of production workers in manufacturing has risen by 169,000 over the last year, while non-production employment has fallen by 152,000. Apparently firms are eliminating supervisory and white collar employees.

Retail trade had zero job growth. The sector has lost 85,000 jobs since February, with 72,000 of the lost jobs coming in general merchandise stores. The financial sector added just 6,000 jobs in July. The stagnation of real estate is a big part of this story. Employment in real estate has been flat since April. The sector added 60,000 jobs last year. With house sales down by 10 percent and real home prices falling, employment in this sector is virtually certain to decline.

The health care and restaurant sectors added 23,000 and 29,000 jobs, respectively, together accounting for almost half of July’s job growth. The other big job gainer was the professional and technical services sector, which added 43,100 jobs. This is likely an anomaly that will be reversed in future months.

The weak job growth reported in the establishment survey raises a question of whether the imputations for new firms not captured in the survey may be overstating job growth. Over the last three months, BLS has imputed a total of 329,000 jobs into the establishment survey job count for new firms not in the sample. Over the same 3 months in 2005, when the economy was growing considerably more rapidly, the imputation was just 295,000. The BLS methodology for new firms always misses cyclical turning points, and if the economy is slowing substantially, job growth may be somewhat worse than the data currently indicate.
The data in the household survey is consistent with the picture of a weakening labor market as the unemployment rate edged up and the employment to population ratio slipped by 0.1 percentage point. The rise in unemployment was only experienced by blacks, who saw their unemployment rate go from 9.0 percent in June to 9.5 percent in July.  By education, the rise in unemployment was felt most by high school grads, who saw their unemployment rate rise from 4.1 to 4.5 percent. The average and median durations of unemployment spells both rose, as did the percentage of long-term unemployed, all consistent with a weakening labor market.

Older workers again seem to be displacing younger workers, with employment among people over age 55 rising by 56,000 even as total employment dropped by 34,000 in July. Over the last year, employment growth among older workers accounted for 1,150,000 of the 2,218,000 increase in employment. Employment of people age 35 to 44 fell by 271,000 over this period.

Wages have risen at a 3.9 percent annual rate over the last three months, which is not enough to keep pace with inflation, but is considerably more rapid than their rate of growth in 2005. The data in this report present the Fed with tough choices. It is clear the economy is now slowing, and that this slowdown is affecting the labor market. At the same time, there is inflationary pressure in the economy, which will be accentuated by slowing productivity growth. On net, the Fed is likely to be more concerned about weakness from the unraveling of the housing bubble than inflation from the modest uptick in wage growth.

Dean Baker is co-director at the Center for Economic and Policy Research in Washington, DC

CEPR’s Jobs Byte is published each month upon release of the Bureau of Labor Statistics’ employment report. 

Combined Federal Campaign #79613




Latin America

Social Security


Union Membership




Displaced Workers