Unemployment Edges Down With Strong Job Growth

April 06, 2007

April 6, 2007 (Jobs Byte)

By Dean Baker

Productivity growth has averaged less than 1.6 percent since 2004.

The establishment survey showed the economy adding 180,000 jobs in March, pushing the unemployment rate down to 4.4 percent. Upward revisions of 30,000 to the prior two months data bring average job growth over the last three months to 152,000.

The job growth was heavily concentrated in the construction (56,000), retail trade (35,900), and education and health sectors (54,000), which together accounted for almost the entire 157,000 increase in private sector employment. The jump in construction employment was a bounce back from a reported loss of 61,000 jobs in February. The January employment numbers were inflated by unusually good weather; construction employment now stands 29,000 above its December level.

Over the last year, construction has managed to add 21,000 jobs as the growth in non-residential construction has more than offset the decline in residential construction. However, the real story is the fact that employment in residential construction is down by only 3.0 percent over the last year, even though construction is down by almost 20 percent. Either productivity in the sector is crashing or, more likely, the data are not reflecting real employment trends. There are many undocumented workers in this sector. It is possible that they did not show up on payrolls during the boom and therefore their lost jobs are not appearing in the data in the downturn. 

The jump in retail jobs is also striking; it is almost entirely attributable to a 35,800 increase in general merchandise stores. This sector had shed 74,000 jobs between September 2005 and November 2006, but has now added 84,000 jobs over the last four months, an annual rate of increase of 12.1 percent. Either job counts had been understated previously or job growth is being overstated, since it doesn’t seem plausible that employment in the sector could be growing so rapidly.

The 54,000 jump in the education and health services component is not out of line with trend growth. Health services have been growing at a monthly rate of 29,000 for the last year. The sector added 29,500 jobs in March. Restaurant employment increased by 19,000, an indication that consumers are still willing to spend freely.

While the job growth in these sectors was healthy, manufacturing lost another 16,000 jobs bringing the year over year loss to 109,000. Autos, textiles, and apparel account for almost the entire job loss over the year. The professional and business services sector lost 7,000 jobs, the first reported decline since November 2004. Temporary employment fell for the second consecutive month and is now 6,600 below the January level. The real estate sector reportedly added 5,000 jobs. Employment is now 32,000 (2.1 percent) above its year ago level.

Most of the data in the household sector was positive, but there were a few exceptions. The employment rate for black teens fell to 22.9 percent, the lowest level since September. By comparison, the employment rate for black teens hovered near 30 percent in 2000. The median and average duration of jobless spells both jumped in March, as did the percentage of long-term unemployed.

Wages grew at a 3.8 percent annual rate over the last quarter. This is down very slightly from the 4.0 percent rate over the last year, but there does not seem to be any discernible trend in the rate of nominal wage growth at present.

There was a reported increase of 0.1 hour in the average workweek, which brings the annual rate of change in the index of hours worked over the first quarter to 1.5 percent. With the consensus forecast of first quarter GDP growth at 2.2 percent (data on February durable goods shipments point lower), this implies productivity growth for the quarter will be approximately 1.0 percent. Furthermore, productivity growth since the third quarter of 2004 will have averaged less than 1.6 percent.

At this point, the employment data shows little evidence that the housing downturn has affected the rest of the economy. In fact, the employment data show little evidence that the housing downturn has affected the housing sector.

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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