May 02, 2003

Bad Employment News

As expected, the April employment news was bad: in the cyclically adjusted numbers, the unemployment rate was up from 5.8 to 6.0 percent, payroll employment was down by 50,000 jobs, and the average workweek shrank by 1 percent.

NEW YORK (CNN/Money) - The U.S. unemployment rate rose to 6 percent in April, the government said Friday, as businesses cut thousands more jobs from their payrolls.

Unemployment rose from March's 5.8 percent rate, the Labor Department reported, and non-farm payrolls shrank by 48,000 jobs, after losing a revised 124,000 jobs in March. Economists, on average, expected unemployment to rise to 5.9 percent and 53,000 jobs to be lost, according to a Reuters poll.

"I find this report a little more reassuring than it looks on the face of it," Bill Cheney, chief economist at John Hancock Financial Services, told CNNfn. "[Some analysts] were looking for a really awful number, and getting a number close to what was expected is actually kind of a relief."

The report had little impact on U.S. stock market futures, which pointed to a mixed opening on Wall Street. Treasury bond prices were little changed.

Friday's report means the year-to-year net change in private payrolls has been negative for 22 straight months, extending the longest stretch of labor-market pain since 1944-46. Private payrolls are now 2.6 million jobs lower than they were in March 2001, when a recession began.

Payrolls in goods-producing industries fell 73,000 in April, led by a 95,000 jobs cut from the manufacturing sector.

Service-producing payrolls grew by 25,000, led by a 32,000-job surge in government hiring. Retailers cut 10,000 jobs. Other service industries, such as tourism, data processing and personnel supply, added 21,000 jobs.

Average hourly wages rose 0.1 percent to $15.11 an hour from $15.09 in March. In a weak labor market, wage growth is a critical support to consumer spending, which makes up more than two-thirds of the nation's economy.

The average work week fell to 34 hours from 34.3 in March, a sign businesses were decreasing activity.

Posted by DeLong at May 2, 2003 06:32 AM | TrackBack

Comments

See the data on hours at

ftp://ftp.bls.gov/pub/suppl/empsit.b2sa.dat

A 1% decline in the work week is, on the face of it, a big deal. The work week is the most flexible observable margin of labor force adjustment and it tends to predict future employment changes. So this is not good new for future employment.

One thing one should note is that there is somewhat a secular trend in this data, with the measured work week getting shorter until around the mid-80s, and then leveling off. This makes interpreting the data a bit more difficult (how do you detrend this data correctly, and how do you correct for trend breaks correctly -- always the nasty issue in empirical macro).

Posted by: stefan on May 2, 2003 06:56 AM

To take a somewhat shorter (more short-sighted?) view of the hours data than Stefan, I would think there is a concern about consumers' ability to spend stuck to the slide in hours. The 34.0 hours mark is low relative to what households are used to. Tack on hourly earnings that have been falling in real terms for several months (down 0.1% on the year in March - no inflation data yet for April) and you begin to run out of spending power. Refi cash outs in Q1 ran around $24 bln, about the same pace as for all of 2002, so spending from that source is not less, but not enough to counteract the slide in earning power. As far as I understand it, the impact on spending from changes in income is slow to show up. Recent slower consumer demand is the result of earlier influences, rather than the slower pace of income growth in recent months. If not corrected, the recent slowdown in income portends further slowing inspending later this year and early next.

And they say the jobs data aren't forward looking.

Posted by: K Harris on May 2, 2003 08:39 AM

Stefan is an awesome lecturer. I tried to take his intermediate macro class last spring but couldn't due to a schedule conflict :(

Posted by: Bobby on May 2, 2003 08:44 AM

"A 1% decline in the work week is, on the face of it, a big deal. The work week is the most flexible observable margin of labor force adjustment and it tends to predict future employment changes. So this is not good new for future employment."

Americans easily have the longest work weeks among workers in developed countrys accourding to the ILO. The worries are shorter work weeks, wages that are rising too slowly, job loss, and increasing income and wealth gaps between middle class and upper upper.

American industry is operating at about 73-74% capacity, while capicity in China and surrounding countries is expanding and these countries have an increasing trade advantage with America.

We are shedding jobs and hours, and I am worried!

Posted by: anne on May 2, 2003 12:14 PM

Meanwhile, Stephen Roach is celebrating the fall of the U.S. dollar:

Global: Dollar Whispers - May 02, 2003

Stephen Roach (New York)

http://www.morganstanley.com/GEFdata/digests/latest-digest.html#anchor0

Posted by: Asher on May 2, 2003 12:37 PM

United States: Average number of hours worked yearly, 2001: 1979

Japan: Average number of hours worked yearly, 2001: 1842

Spain: Average number of hours worked yearly, 2001: 1815.8

Canada: Average number of hours worked yearly, 2001: 1779.5

United Kingdom: Average number of hours worked yearly, 2001: 1711

Italy: Average number of hours worked yearly, 2001: 1606

Sweden: Average number of hours worked yearly, 2001: 1602

France: Average number of hours worked yearly, 2001: 1531.7

Germany: Average number of hours worked yearly, 2001: 1467.1

ILO 2001

Posted by: anne on May 2, 2003 12:51 PM

Agree. We have a problem with jobs and cutting dividend taxes or capital gains taxes or speeding up the tax cuts for the richest will not solve our growth problems.

Posted by: lise on May 2, 2003 01:36 PM

The stock market seemed happy with the news. and The often less irrational bond market raised interest rates.

Posted by: richard on May 2, 2003 01:57 PM

Anne

The fact that China is growing should not be bad news for the U.S. economy. After all, their workers will also consume goods. Now the fact that our national savings is a mere 1% of NNP means any investment beyond 1% of NNP means a trade deficit. The pricing mechanism is a strong currency which is why the Chinese et al. export more to us than we do to them. But don't blame their growth for our problems.

Posted by: Hal McClure on May 2, 2003 02:39 PM

A closer look at the income taxes collected at the federal level during the boom years may show that, if you separate the "hard" money taxes on income and earnings from the "soft" money taxes on capital gains, that the Clinton budget was NOT really balanced, but was in fact in deficit relative to the "hard" money.

If the taxpayer does not recover the loss, then the government was actually collecting an extra "bubble tax" on false value. So, if that level of taxation is the one that keeps the economy going for now, then maybe an increase on the taxes in higher brackets would be a temporary solution.

I believe that health care costs are a driving factor. The railroad here has laid off people, and yet others work 60 hr weeks because they save money on overhead. A bypass operation of comparable quality costs at least 10 times as much here as in some foreign hospitals. I think India health care, and some other foreign health care partnerships will put strong pressure on this industry here, and we can't really afford to keep going the way we are. Also, education costs can't continue like this or it will be segregated the way health care has become.

What is the real world value of our jobs? Manufacturing workers already know, now will the suburbanocracy soon know what theirs is?

Posted by: nkirsch on May 2, 2003 05:53 PM

As a soon-to-be graduate, this ongoing news is making me extremely nervous. And I count myself as one of the lucky ones.

Posted by: Jonathan on May 2, 2003 10:07 PM

Hal, Agreed on the free-trade side of the argument with China getting richer, spread out , overall benefits us.
However, if I imagine China as being as rich as us, and consuming natural resources at the same rate, I see some problems - that is an awful lot of cars, and fuel. So, my question to you, at what point does that become an issue? Where do we first see the problems related to massive Chinese consumption, and how does it resolve itself economically (politically may be even more interesting).

Posted by: theCoach on May 3, 2003 10:56 AM

Agreed on China completely! The point I SHOULD have made is that we must do more to spur domestic demand. China is not a problem, but is increasingly competitive. Such competition can easily lead to job loss as in any trade situation, and there needs to be attention paid to spurring demand and labor market flexibility.

Posted by: anne on May 3, 2003 01:40 PM

What is most discouraging is how little was made in the press of yet another awful jobs report. The President called again [what else] for bigger faster tax cuts for the wealthy, the stock market rose, back now to whatever. We have more of the worst of fiscal policy in the offing.

Posted by: jd on May 3, 2003 02:29 PM

--"What is the real world value of our jobs?"--

This is a formula for a race to the bottom. The "real-world" value of our jobs in a world with high unemployment is very, very low. They graduate plenty of great engineers in India - should American engineers should be paid less or laid off? That's what's happening, and those jobs aren't coming back. And that doesn't mean that Indian engineers are going to get raises so they can buy stuff from us. Not any time in our lifetimes, anyway.

You gotta think of a better solution - a different way to look at this - or we ALL wind up poor, working for subsistance wages or less, until the rest starve, hopefully causing some labor shortages somewhere in the world.

Posted by: IssuesGuy on May 3, 2003 05:34 PM

Interesting article in Slate by Daniel Gross
on the unemployment situation.

George Walker Hoover?
President Bush is on track to match Herbert Hoover's record of job destruction.
By Daniel Gross


http://slate.msn.com/id/2082321/

[Bush] stands to preside over the first presidency since Hoover's in which the American economy lost jobs.

Posted by: bhaim on May 6, 2003 08:02 PM
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