Jobless recovery continues

posted by Mactyler on Saturday July 19, @03:39AM

The recession may be over, but the jobless recovery continues unabated.

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July 3, 2003

Unemployment rate jumps, while payrolls decline

The nation's unemployment rate unexpectedly jumped to 6.4% in June, reaching not only the highest rate of joblessness since the recession began in March 2001, but also the highest unemployment rate since April 1994. According to today's report from the Bureau of Labor Statistics, the number of job seekers stands at 9.4 million, an increase of 3.3 million since the peak of the last business cycle. Payrolls contracted for the fifth consecutive month, by 30,000. While this represents a considerably smaller loss than last month's revised payroll decline of 70,000, the jobless recovery shows few signs of abating.

In fact, labor market trends have grown somewhat more negative over the past six months. Between December 2002 and June of this year, payrolls are down by 236,000 and unemployment is up by 0.4 percentage points. Over the previous six-month period—June 2002 through December 2002—payrolls were down 185,000 and unemployment up by 0.2 points. Since the onset of the recession, total employment is down 2.6 million and the private sector has lost 3.1 million jobs.

Two important trends are contributing to the rise in unemployment. First, the labor force grew quickly last month, adding 611,000 persons. One factor holding back the growth of unemployment in earlier months has been slower labor force growth, as potential job seekers chose not to look for work in such a weak job market. If the number of job seekers joining the job market continues to accelerate in a jobless environment, it will put upward pressure on the jobless rate.

A second revealing trend is the duration of time spent unemployed, an indicator of the difficulty facing job seekers. Both the median and average number of weeks spent seeking work grew last month, and both remain stuck at recessionary levels. In fact, these duration levels have historically been associated with much higher unemployment rates, suggesting today's rate of 6.4% understates the degree of labor market weakness. The median unemployment duration of 12.3 weeks is the highest this series has reached since it began in July 1967 (the series also hit this level in May 1983, when the unemployment rate was at 10.1%). The last time the average number of weeks of unemployment was higher than today's average of 19.8 was in August 1983, when the series hit 20 weeks and the unemployment rate was 9.5%.

The underemployment rate—which, in addition to the unemployed, includes part-time workers who would rather be working full time and discouraged workers no longer seeking jobs—rose to 10.3% in June, the highest rate since September 1994 (this series is seasonally adjusted by EPI, not by the BLS, and thus is not an official BLS statistic).

Factory employment was cut by 56,000 last month, close to the average monthly loss of 53,000 over the past year. June marks the 35th consecutive month of declining payrolls in manufacturing.

Service employment was mixed, up 10,000, with losses in retail trade, wholesale trade, information technology, transportation, and telecommunications offset by gains construction, mortgage banking, and health services, three industries that have remained somewhat insulated from the negative forces affecting most other sectors. Continued hiring in the temp sector—up 82,000 over the past two months—may indicate that employers are testing the waters, unwilling to commit to permanent hires, but feeling more confident about the future.

The persistently high unemployment is leading to slowed wage growth. Measured on a quarterly basis, nominal hourly wages grew at an annualized rate of only 2% in the second quarter, the slowest growth rate since the first quarter of 1988. Since weekly hours of work have also been stagnant in recent months, weekly earnings have grown even more slowly, at an annualized rate of 1.2% in the second quarter. Even with low inflation, such slow wage growth may constrain consumption moving forward.

In recent news accounts, many economic analysts have been predicting a strong second half of this year in terms of GDP growth. Today's Wall Street Journal, for example, features a survey of economists predicting second-half GDP growth of about 3.7%. However, since this rate of growth is only slightly above the expected growth rate given the growth in the labor force and productivity (our potential growth rate), even this optimistic forecast will only reduce unemployment slightly in the second half of 2003. The implication is that jobless rates will be stuck in the 6% range for at least the next few quarters, and full employment—4% or lower—is unlikely to be reached in the foreseeable future.

These analysts may well be underestimating the extent to which persistent labor market weakness will dampen consumer spending, and thus investment, for the rest of the year (note that investment is held back not by the very low cost of capital, but by weak consumer demand). Despite the optimists' predictions, if lack of jobs, high unemployment, and slower wage and income growth persist, the jobless recovery will be prolonged.

—Jared Bernstein with research assistance by Brendan Hill The Economic Policy Institute JOBS PICTURE is published each month upon release of the Bureau of Labor Statistics' employment report.

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