October 7, 2005 (Jobs Byte)
Jobs Byte

Economy Maintains Strength, Despite Katrina

October 7, 2005
By Dean Baker

Employment rates for African American teens hit a twenty year low.

The economy appeared far stronger in September than most analysts had expected, with the establishment survey showing a loss of just 35,000 jobs, despite the effects of Hurricane Katrina. There was a substantial upward revision to the prior two months data, so that job growth in July and August is now reported at 488,000. Most of the data in the household survey also supported the picture of a generally healthy labor market. However, these data reflect the situation at the beginning of September, before the negative effects of sharply higher gas and energy would show up.

The job losses in the establishment survey were largely in the areas that would be expected from Katrina. The retail sector lost 88,000 jobs and the leisure and hospitality sector lost 80,000 jobs, declines that would have been expected given the devastation in New Orleans. Most other sectors added jobs. The health care sector added 36,500 jobs, while construction employment increased by 23,000, both relatively strong numbers. The temporary help sector added 31,700 jobs, some of which may be associated with the Katrina clean-up. However, job growth was revised up the prior two months, so that the survey now reports a gain of 43,600 temporary help jobs from June to August.

Manufacturing lost 27,000 jobs for reasons that were probably unrelated to Katrina. The sector seems to again be on a downward path, having lost 118,000 jobs, or 0.8 percent of total employment, over the last year. Transportation equipment accounted for 29,000 lost jobs over the year, a situation which is likely to worsen with the problems facing the domestic auto industry. Textiles and apparel accounted for another 42,000 lost jobs (8.0 percent of industry employment) over the year.

While the unemployment rate ticked up to 5.1 percent in September, the data in the household survey was surprisingly positive given the effects of the hurricane. The average and median duration of unemployment spells both fell, and the percentage of unemployment attributable to people who voluntarily quit their jobs inched up slightly to the highest rate since May. The number of people who report being discouraged from looking for work was far below its year-ago level. The one major exception is a decline in the employment rate among black teens to 19.8 percent. This is the lowest employment to population ratio for black teens since May of 1984.

Reported wage growth was weak in September, but wage growth over the last quarter was 3.1 percent at an annual rate. This is somewhat higher than the 2.6 percent rate of wage growth over the last year, but close to a full percentage point below the rate of inflation that the economy is currently seeing due to rising energy prices. September wage growth was held down by an anomalous 10 cent reported decline in nominal wages in the retail sector. This number will likely be revised up next month, or alternatively, retail wages in October are likely to show a sharp jump. In any case, it is likely that the rate of nominal wage growth has increased over the last year, although probably not enough to provide any real wage growth.

One interesting sidebar in this report is a preliminary estimate of the size of the annual benchmark revisions to the establishment data. The preliminary data shows that the level of employment in March of 2005 will be revised down by 191,000. This downward revision is likely to have the impact of eliminating the 119,000 job gain currently reported for the first term of the Bush administration (Jan 01- Jan 05), making this the first presidential administration to show a net job loss since Herbert Hoover.

On net, this report raises more questions than it answers. The economy was clearly stronger in the pre-Katrina period than had been generally recognized. However, this survey does not give us much information on how consumers and employers are responding to the effects of sharply higher energy prices, nor does it begin to capture much of the employment gains associated with the reconstruction efforts.

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.