August 06, 2002

EPI's Jobs Picture

The Economic Policy Institute's Jobs Picture. Every month the EPI writes up a more readable summary of the BLS's Monthly Employment Report. I blush to admit that in recent months I've been reading EPI's summary rather than the original document--thus putting me one link further from the source.

This month EPI highlights our current "jobless recovery": output and production are growing, yes; but the trend of unemployment is definitely flat, or slowly rising.


Economic Policy Institute

August 2, 2002

Labor market stalls with no new job growth
The nation’s unemployment rate remained unchanged at 5.9% last month, and payroll employment increased by only 6,000,
according to today’s report from the Bureau of Labor Statistics. The job market has effectively stalled with job growth failing to meet economist’s expectations. Over the past four months the employment situation has shown no evidence of improvement, with modest gains in the service sector and continued declines in manufacturing. Unemployment rates remain low in large part due to slow growth in the labor force. Overall, today’s report indicates a weak economy struggling to find sources of growth.

Demand for labor remains weak, with many key indicators all showing signs of decline last month. Involuntary part-time employment (part-time workers who prefer full-time jobs) increased to 4.2 million from 3.9 million. In July 17.9% of those working part time would prefer a full-time job, up from 16.9% in June. Nearly one in six part-time workers wants a full-time job but cannot find one due to limited demand.

In the goods producing sector of the economy, average weekly hours of work declined by 0.5 hours to 40.0. Mining, construction, and manufacturing all saw declines in average weekly hours. Average weekly hours are at their lowest level since the height of the recession in October 2001. Additionally, overtime hours have declined by 0.2 hours, reversing a nine-month trend of increasing overtime hours.

Additional signs of labor market weakness are evident in the help supply services sector. For the first time in four months, firms cut back on their use of help supply services, shedding 35,000 jobs. This decline occurred after averaging increases of 34,000 jobs during the last four months. This industry serves as an early indicator of the strength of the labor market. Taken together, the increase in involuntary part-time work, the decline in temporary employment, and the decline in work hours all point to weak demand for labor.

Unemployment was largely unchanged across major demographic groups. Men’s and women’s rates of unemployment remained virtually unchanged. A significant decline among black males from June’s 10.4% to July’s 9.0% only reverses June’s increase. This decline was largely driven by a reduction in the black labor force participation rate, which declined to 64.0% and is lowest labor force participation rate for black men since June 1996.

Most of the household data indicates a weaker-than-expected labor market with unemployment rates held down by declining labor force participation. In July the labor force participation rate continued its slide down to 66.5%, as fewer people reported working or looking for work. The employment-to-population ratio also continued to decline. Slow growth in the labor force holds down the unemployment rate since many of those not in the labor force would presumably be unemployed.

Median weeks of unemployment declined considerably from their all-time highs last month, dropping from 11.7 weeks to 8.6. Despite this decline in median weeks, nearly one in five workers (18.6%) have been searching for a job for more than six months. This long-term unemployment is problematic since many workers run out of unemployment insurance benefits after 39 weeks.

Average hourly wages continued to grow at a slow pace. Weak demand for labor has removed pressure on wages and has resulted in modest wage growth. From June to July wages increased $.04. Looking over the year, average hourly wages have increased by only 3.2% from July 2001 to July 2002.

Overall, the current U.S. labor market is in the doldrums: scant growth in employment, declines in hours, increases in involuntary part time, and continued slow wage growth point to a stalled labor market. The weak demand for labor coupled with slow GDP growth and sinking consumer confidence suggests that a jobless recovery is well underway and that the economy is poised for increases in unemployment.

Jeffrey Wenger,
with research assistance by Matthew Walters

August 2, 2002

Labor market stalls with no new job growth
The nation’s unemployment rate remained unchanged at 5.9% last month, and payroll employment increased by only 6,000,
according to today’s report from the Bureau of Labor Statistics. The job market has effectively stalled with job growth failing to meet economist’s expectations. Over the past four months the employment situation has shown no evidence of improvement, with modest gains in the service sector and continued declines in manufacturing. Unemployment rates remain low in large part due to slow growth in the labor force. Overall, today’s report indicates a weak economy struggling to find sources of growth.

Demand for labor remains weak, with many key indicators all showing signs of decline last month. Involuntary part-time employment (part-time workers who prefer full-time jobs) increased to 4.2 million from 3.9 million. In July 17.9% of those working part time would prefer a full-time job, up from 16.9% in June. Nearly one in six part-time workers wants a full-time job but cannot find one due to limited demand.

In the goods producing sector of the economy, average weekly hours of work declined by 0.5 hours to 40.0. Mining, construction, and manufacturing all saw declines in average weekly hours. Average weekly hours are at their lowest level since the height of the recession in October 2001. Additionally, overtime hours have declined by 0.2 hours, reversing a nine-month trend of increasing overtime hours.

Additional signs of labor market weakness are evident in the help supply services sector. For the first time in four months, firms cut back on their use of help supply services, shedding 35,000 jobs. This decline occurred after averaging increases of 34,000 jobs during the last four months. This industry serves as an early indicator of the strength of the labor market. Taken together, the increase in involuntary part-time work, the decline in temporary employment, and the decline in work hours all point to weak demand for labor.

Unemployment was largely unchanged across major demographic groups. Men’s and women’s rates of unemployment remained virtually unchanged. A significant decline among black males from June’s 10.4% to July’s 9.0% only reverses June’s increase. This decline was largely driven by a reduction in the black labor force participation rate, which declined to 64.0% and is lowest labor force participation rate for black men since June 1996.

Most of the household data indicates a weaker-than-expected labor market with unemployment rates held down by declining labor force participation. In July the labor force participation rate continued its slide down to 66.5%, as fewer people reported working or looking for work. The employment-to-population ratio also continued to decline. Slow growth in the labor force holds down the unemployment rate since many of those not in the labor force would presumably be unemployed.

Median weeks of unemployment declined considerably from their all-time highs last month, dropping from 11.7 weeks to 8.6. Despite this decline in median weeks, nearly one in five workers (18.6%) have been searching for a job for more than six months. This long-term unemployment is problematic since many workers run out of unemployment insurance benefits after 39 weeks.

Average hourly wages continued to grow at a slow pace. Weak demand for labor has removed pressure on wages and has resulted in modest wage growth. From June to July wages increased $.04. Looking over the year, average hourly wages have increased by only 3.2% from July 2001 to July 2002.

Overall, the current U.S. labor market is in the doldrums: scant growth in employment, declines in hours, increases in involuntary part time, and continued slow wage growth point to a stalled labor market. The weak demand for labor coupled with slow GDP growth and sinking consumer confidence suggests that a jobless recovery is well underway and that the economy is poised for increases in unemployment.

Jeffrey Wenger,
with research assistance by Matthew Walters

Posted by DeLong at August 6, 2002 05:59 AM | TrackBack

Comments

Brad,

Were you and Alan Blinder too optimistic about recovery? Why? Should we be surpised at the revisions to national accounts and should we expect a revision to productivity numbers? Is this economic cycle and bear market more comparable to a pre-WWII excess capacity cycle and bear market? Can you guess at the loss of wealth effect for older workers?

JD

Posted by: JD on August 6, 2002 11:59 AM

Brad:

Enjoy reading your comments and ideas. Reading the Economic Policy Institute summary you posted, I was struck by how negative it sounded. Went to their website and concluded they are hardly an unbiased observer of economic issues. Is this your idea of a good source for information?

--KB

Posted by: Kurt Brouwer on August 6, 2002 12:24 PM

Though it was little noticed in the press when greenspan testified before congress shortly before the release of the august employment report, he was quite subdued about job market prospects for the rest of this year and next. The EPI discussion may sadly be all too "good" a source of information.

Posted by: on August 6, 2002 12:45 PM

The EPI definitely has a strong institutional point of view. But they are an organization who believe so strongly that they are the good guys that they think the higher the level of the debate, the better for them.

So, yes, the EPI is a *very* good source of information. (Although I do reserve the right to disagree with the interpretations Larry Michel and company place on some pieces of it.)

Posted by: Brad DeLong on August 6, 2002 01:48 PM

Brad,

Didn't the last economic upturn-- you know, the longest sustained expansion in U.S. history -- start with a jobless recovery as well? I seem to recall a lot of bluster back in 1994/95 about jobless growth as well. What would make the current situation different?

Posted by: Dan Drezner on August 7, 2002 09:56 AM

my worry is that this is not a fed induced slow down to limit inflation but a bursting of a stock market bubble that had led to over investment in capacity - excess capacity in an area such as telecommunications could take quite a long time to absorb and so a renewel of decent growth could be longer in coming than in recessions since WWII

the fed is keeping consumption going but if a negative wealth effect becomes apparent because of the stock market losses people have suffered and so consumption slows there could easily be a further slow down

then too - we are entering a period of sustained budget deficits that may add to the relative cost of investment capital

larry summers told us early in 2001 to worry about a slow down of the pre-WWII manner - fiber is not railroad track and useage should catch capacity in years and not decades but hal varian has compared the capacity problem to the railroad problem of the 1800's.

Posted by: randall on August 7, 2002 10:15 AM

Dan: The last recovery was led by business investment. This recovery is being led by consumer spending. Hence, employment matters more.

Posted by: Daniel Davies on August 8, 2002 05:34 AM

As others have alluded to, the problem here is most likely that we are in the deflation of an asset-investment bubble.

The result is over supply (and rising labour productivity) and a deficiency of aggregate demand.

Japan, interestingly, showed the same pattern of high investment and rising productivity, even as the 1989-90 slump began.

So the recovery is likely to be jobless for some time to come. In the early 90s, the banking/ real estate crash meant there was excess capacity in the economy (and a credit squeeze) and this time it is more likely to be a corporate credit squeeze plus a long term need by corporates to improve their cash flow (by reducing investment spend).

There is an article in Forbes this week about problems in the local phone and cable industries. Basically, both have overinvested, and are now staggering under huge debt loads, with minimal revenue growth. They are the worst case, but this is typical of many American industries.

Ironically, the best thing the Administration could have done was go out and run a deficit, and in particular spend lots of money: we are all Keynesians now. The post 9/11 spending boom on military and security was probably about the most helpful thing the US government could have done (besides spending more money on construction and repair). More federal employees on good wages and benefits, spending their money, is precisely what the economy needs.

The worst is probably a tax cut to high earners which simply encourages them to save more (given their shrinking asset bases).

What will happen next is the US dollar will fall further and, hopefully, the Japanese and European central banks will get more aggressive about easing, because they see their currencies rising painfully.

Meanwhile, the US will invade Iraq. This will kill consumer confidence, short run (house to house fighting in Baghdad, under the eyes of CNN), but long run will pump even more government money into the US economy.

Posted by: John on August 9, 2002 05:19 AM
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