February 2, 2007 (Jobs Byte)
By Dean Baker
Productivity growth will be revised down by 0.7 pp due to the benchmark revision.
The establishment survey showed the economy adding 111,000 jobs in January, in spite of unusually good weather in the Northeast and Midwest. However, upward revisions to the prior two month’s data left the 3-month average at a respectable 171,000. The unemployment rate remained virtually constant at 4.6 percent.
The effects of the weather were most striking in construction, which added 22,000 jobs. (The survey is based on the pay period that includes the 12th, so today’s data would not be affected by weather over the last two weeks.) Construction employment now stands 100,000 above its year ago level. Even residential construction has only declined modestly, losing just 75,000 jobs over the last year, or 2.5 percent of employment in the sector. Since output in the sector fell by 12.3 percent between the 4th quarter of 2005 and the 4th quarter of 2006, a larger drop in employment would have been expected. The real estate sector has actually seen an increase of 25,000 jobs over the last year.
Manufacturing lost another 16,000 jobs in January, bringing the cumulative loss since September to 97,000 jobs. This decline has been heavily concentrated among production workers in durable goods, a category that has lost 83,000 jobs since September. Autos have been hardest hit, losing 49,000 jobs over this period. The benchmark revision actually lowered manufacturing employment slightly, it now accounts for just 10.3 percent of total employment.
The biggest job gainers for the month were the professional and technical services category (25,000), health care (18,400), and restaurants (20,900). This last figure was probably boosted somewhat by good weather. The professional and technical services category has shown extraordinary growth over the last year, growing by 280,000 jobs, or 3.9 percent.
The average hourly wage has grown at a 3.8 percent annual rate over the last 3 months, down slightly from the 4.0 percent rate over the last year.
Most of the data in the household survey are consistent with a strong labor market, but there are a few signs of deterioration. The percentage of unemployment attributable to workers voluntarily quitting their jobs, a measure of workers’ confidence in the economy, fell to 11.2 percent from a cyclical peak of 12.5 percent in May. The number of workers who report being discouraged over their job prospects is up 10 percent from year ago levels. And, the unemployment rate for black teens has drifted up to 29.1 percent. Against a generally strong picture, these measures are not especially ominous, but they do indicate that some workers are still having difficulty finding employment.
One interesting development in recent months has been the decline in employment among older workers. In the period from the business cycle peak in February 2001 until September of 2007, workers over age 55 accounted for a remarkable 89.4 percent of employment growth, with the growth split nearly evenly between men and women. Since September, employment of workers over age 55 has fallen by 31,000, with employment of older men falling 173,000 while employment of older women has continued to rise. The drop in employment of older men would be consistent with baby boomers beginning to retire in larger numbers.
The annual benchmark revision increased employment reported in the establishment survey by 754,000 jobs as of March 2006. This is extraordinarily large revision changes the perception of the economy over this period. While job growth was stronger than had been reported (the revision added 238,000 jobs in construction and 259,000 in professional and business services), revised productivity growth data will be considerably slower. Productivity growth for the period from the first quarter of 2005 to the first quarter of 2006 will be revised down from 2.7 percent to about 2.0 percent. Since growth has averaged less than 1.0 percent in the intervening quarters, the revision raises real concerns about the future course of productivity growth.
With concerns about slower productivity growth, further weakening in the manufacturing and housing sectors, and the end of extraordinarily good weather, there is a real basis for concern about the strength of the economy in 2007.
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.