Economy Loses Jobs for the First Time in Four Years

September 07, 2007

Heather Boushey

September 7, 2007 (Jobs Byte)

By Heather Boushey 

The one bright spot in today’s report is that average hourly wages grew at an annual nominal rate of 4.5 percent over the past quarter, putting wage growth slightly above inflation.

The economy lost 4,000 jobs last month and prior months’ job gains were revised downwards, raising the possibility that the economy may be at a turning point. Employment grew by only 68,000 in July and 69,000 in June, a downward revision of 81,000 jobs relative to initial estimates. The Bureau of Labor Statistics (BLS) uses a statistical model to predict how many new firms are established and how many go out of business each month, but when the economy turns from expansion to contraction, these models tend to overstate the number of new business and understate firms closing, which is what appears to be happening now.

The report shows that the crisis in the housing sector is fanning out to the rest of the economy. Employment losses were concentrated in manufacturing, construction, temporary help, and local-government education, while job growth continued in health care and food services. Construction, manufacturing and temporary help have all been showing job losses for some time, but the job losses are over twice the typical monthly losses that these industries have seen over the past year.

Construction lost 22,000 jobs in August, with most of the jobs lost in residential specialty trade contractors, which fell 18,000 last month. Over the past year, construction has lost 90,000 jobs and the job declines in August were nearly three times as large as the monthly average. Manufacturing employment dropped 46,000 in August, a much larger dip than in prior months. Over the past year, manufacturing has lost 215,000 jobs, with losses spread across industries within manufacturing.

While the decline in housing was expected to affect construction, the fall-out appears to be widening to other industries. Temporary help shed jobs last month, losing 13,000 in August and 63,000 for the year. Declining employment in temporary help, combined with no change in the index of aggregate weekly hours worked in August, indicate that firms may lay-off permanent employees in months to come. Local government lost 24,000 jobs last month, with a 34,000 job decline in education (employment increases in other areas of local government partially offset the losses in education). Education expenditures are closely tied to local property taxes and the drop in employment may indicate that local governments are feeling the pinch of falling housing prices.

The labor force participation rate and the employment rate both dropped in August. Labor force participation fell from 66.1 in July to 65.8 percent in August while the share of the population with a job—the employment rate—fell from 63.0 to 62.8 percent.

Unemployment remained at 4.6 percent, primarily because so many people left the labor force. The employment rate is a better indicator of labor-market tightness because it shows the share of people at work, regardless of why they are not working. When jobs become harder to find, people tend to become discouraged or leave the labor force, and thus are not counted in the unemployment rate.

The household survey includes many signs that workers are being laid off and having a difficult time finding a new job. The share of those unemployed who are “job losers,” that is, workers who did not voluntarily leave their last job, rose to 51.2 percent last month, higher than at any point since January 2005. The share of the unemployed who are reentering the labor market is at its lowest point since January 2005. The number of workers employed part-time for economic reasons—that is, who would prefer a full-time job, but can only find part-time work—has been trending upwards since early 2006 and rose by 213,000 over the past month to 4,516,000. A year ago, 17.5 percent of those working part-time were doing so for economic reasons, compared to 18.5 percent now.

The decline in employment (all figures are seasonally adjusted) was concentrated among teenagers. Of the decline in employment last month, nearly nine of out ten were teenagers and teen employment fell from 35.0 to 33.3 percent. The drop-off in employment occurred among both white and black teens: last month, white teen employment fell from 38.5 to 36.9 percent, while black teen employment fell from 21.6 to 19.7 percent. Women aged 20 and over saw no change in their employment last month and men aged 20 and over saw their employment fall by only 0.1 percentage points, from 72.7 to 72.6. 

Heather Boushey is an economist at 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. For more information or to subscribe by fax or email contact CEPR at 202-293-5380 ext. 102, or or morgavan [at] cepr [dot] net.

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