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Home Publications Data Bytes Jobs Bytes Strong Employment Growth Indicates Weak Productivity Growth

Strong Employment Growth Indicates Weak Productivity Growth

April 7, 2006 (Jobs Byte)
Jobs Byte

Strong Employment Growth Indicates Weak Productivity Growth

April 7, 2006
 
By Dean Baker

Black teens have been largely left out of the recovery.

The March employment report showed a healthy gain of 211,000 jobs for the month. The economy has added an average of 187,000 jobs a month over the last six months. This pace exceeds the rate of growth of the labor force, and should allow for further increases in the employment to population ratio (EPOP). The EPOP reached 63.0 percent in March, but it is still down 1.7 percentage points from its peak of 64.7 percent in April of 2000, which means that there is still a substantial slack in the labor market.

The pace of hour growth has been somewhat more rapid than the pace of job growth, with payroll hours rising at a 3.1 percent annual rate in the first quarter. This strong growth in hours will almost certainly mean another weak quarter for productivity growth, especially since reported self-employment rose at a 14.9 percent annual rate. (Data on self-employment is very erratic.) With private sector hours growing at close to a 4.0 percent annual rate, first quarter productivity growth will be close to zero, following a decline of 0.5 percent in the 4th quarter.

Wages grew at a 3.6 percent annual rate over the quarter. This is fast enough to allow for some modest real wage growth, with inflation running at a 2.7 percent rate in the quarter. If the labor market remains healthy, workers will be able to regain some of the ground lost over the past 4 years. However, they may not get this opportunity since the prospect of weak productivity growth, coupled with a modest pick-up in wage growth is likely to concern the Fed.  

Almost all the job growth in March was accounted for by the 202,000 jobs added in the service sector. Big job gainers were restaurants with 33,100 jobs, retail trade with 29,400, and health care with 24,300 jobs. Temporary help added 15,700 jobs, although employment in the sector is still below the December level. This most likely reflects problems in seasonal adjustment.

Manufacturing lost 5,000 jobs. With a downward revision to last month’s data, employment in the sector appears to be on a modest negative track. However, the total conceals modest growth in the durable sector, which has added 35,000 jobs since July. The non-durable sector continues to shed jobs, lead by the apparel and textile sectors, which lost 31, 600 jobs over the last year.

Construction added just 7,000 jobs in March, following a gain of 81,000 over the prior two months. This could be a random movement in an erratic series, or it could reflect slowing in the sector, which is evident in other data. In this vein, the real estate sector has added just 900 jobs over the last 2 months, after adding 57,000 jobs in the prior year.

Most of the data in the household survey reinforce the view of a strengthening labor market, with the overall unemployment rate remaining at 4.7 percent. The one noteworthy change for a demographic sub-group was the 2.3 percentage point increase, to 33.1 percent, in the unemployment rate for black teens. While most demographic groups have seen substantial improvement in their labor market situation in the last two years, black teens appear to have been largely left behind. The unemployment rate for black teens has averaged 31.8 percent in the first quarter of 2006, this compares to a year-round average of 24.3 percent in 2000. Their EPOP has been 23.5 percent in 2006, compared to 29.8 percent in 2000. These data indicate that black teens have thus far seen little benefit from the strengthening labor market.

The March data showed declines in the average and median duration of unemployment spells, and a reduction in long-term unemployment, largely reversing the increases shown in these numbers in February. Most likely the February data was an aberration.

In sum, the March employment report is consistent with other data indicating that the labor market is on a healthy path, with a respectable pace of job and wage growth. The question is whether interest rate hikes by the Fed, coupled with a weakening housing market, will allow this trend to continue.

Dean Baker is co-director of 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.
 

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