Jobs Growth Slows Again in December
January 5, 2005
By Dean Baker
The establishment survey showed the economy generated 157,000 jobs in December. This figure is just fast enough to keep pace with the natural growth of the labor market. This rate of job growth will not reduce the number of unemployed or tap the pool of workers who have dropped out of the labor market altogether.
Even more discouraging, there are several items in this report that point to slower job growth in the future, suggesting that unemployment may actually start to head up again. At the top of this list is wage growth. Wage growth had fallen behind inflation in early 2003, but there had been some evidence of a pick-up in wage growth over the summer. Recent data show wage growth to be slowing again, with the annual rate of increase over the last quarter being just 2.3 percent, compared to 2.7 percent over the last year. Both figures are well below the 3.5 percent rate of inflation over the last year. As is typical of a weak labor market, those at the bottom seem to be doing worst.
Over the last year, wages in the retail trade and the leisure sectors have risen by 2.3 percent and 2.2 percent, respectively. The other items in this report suggesting further weakening in the future are the decline in the employment diffusion indexes and the weak growth in jobs in the temp sector. The employment diffusion indexes, which report the percentage of industries in which employers plan to add workers over various time frames, all showed substantial declines. This was most notable with the manufacturing indexes, with the 3-month diffusion index now showing a reading of just 42.3. This is the lowest since last December and a drop from 71.4 in May. The temp sector added 9,400 jobs in December, but with a downward revision for November, the two-month gain was just 6,900. A strong economy would be adding 20,000-30,000 temp jobs a month. Few sectors showed much strength in December. Manufacturing employment was virtually flat, as it has been since July. Construction added 7,000 jobs for the second straight month, but with construction spending leveling off, if not actually declining, this sector is not likely to provide many jobs in the near future. The bulk of the new jobs came from the professional and business services sector, which added 41,000 jobs and the health and education sector, which added 47,000 jobs. The government sector added 29,000 jobs. The retail sector showed a loss of 20,000 jobs. While this is partly attributable to weak sales growth, it probably also reflects changing seasonal employment patterns - there were drops in retail employment reported for December the last two years as well, which were reversed in January.
There were few noteworthy changes in the household survey, with the unemployment rate holding fixed at 5.4 percent and the employment to population ratio edging down to 62.4 percent, as 110,000 workers reportedly left the workforce. Job growth in the household survey has trailed the establishment survey over the last year, with reported employment rising by 1,747,000, compared to job growth of 2,231,000 in the establishment survey. Older workers continue to account for the bulk of new jobs. Employment among people over age 55 has increased by 353,000 since October, which is more than the 329,000 growth in total employment reported for this period. Older workers have accounted for 57.1 percent of employment growth over the last year. The big losers have been those between the ages of 35 and 44. Employment for people in this age group is down by 157,000 over the last year and by almost 2 million since its peak in January of 2001.
This report does not bode well for the future course of the recovery. With wage growth lagging, and the savings rate already near zero, there is little basis for strong consumption growth. Recent data on construction indicate a weakening in this important sector, and with investment tax incentives ending last month, there is little reason to believe an investment boom can fill the gap.
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.