Economy Sheds Another 44,000 Jobs in July By Dean Baker August 1, 2003
JOB LOSS AND SHORTER WORKWEEKS HAVE PUSHED THE HOURS INDEX DOWN TO ITS NOVEMBER, 1997 LEVEL.
The employment report for July was surprisingly weak, as it showed the economy losing another 44,000 jobs in the month, with the labor force participation rate falling by 0.4 percentage points. This large drop in labor force participation, which implies people gave up looking for work, coincided with a 0.2 percentage point drop in the unemployment rate to 6.2 percent.
The decline in employment was widespread across sectors although manufacturing was hardest hit, losing 71,000 jobs. The news both overall and in manufacturing is even somewhat worse than these numbers imply because the overall number of jobs reported for June was revised downward by 48,000 and for manufacturing by 6,798. Over the last three months, the economy has lost 192,000 jobs. The manufacturing sector has lost 183,000 jobs over this period.
There had been some hope that the job loss in the manufacturing sector was starting to level off. Several recent surveys, including the Fed's Beige Book, had shown evidence of a modest upturn in the sector. Clearly this is not yet translating into employment growth, or even slowing the decline. In addition to the drop in manufacturing employment, the length of the average workweek also declined by 0.2 hours (part of this reversed an upward revision of 0.1 hour for June), suggesting that no upturn in employment is imminent.
Job loss in most other sectors was more modest – retail trade lost 14,000 jobs, transportation 16,000, and government 10,000 – but the fact that jobs declines were so widespread is striking. The only sector showing solid growth was the professional and business services sector, which added 73,000 jobs in July. This in turn was driven by job growth in the temp sector, which added 42,000 jobs. The temp sector has now added 122,000 jobs over the last three months. This is somewhat promising, since firms often add temporary workers before hiring full-time staff, but there was a comparable increase in temporary sector employment last spring and summer, which did not lead to a surge in hiring.
The picture in the household survey is consistent with the job loss figures in the establishment data. The July decline in labor force participation is probably somewhat exaggerated, because June showed an increase of 0.2 percentage points. Still the general direction is clearly down. The falloff in labor force participation and unemployment rates was concentrated among the non-white population. The labor force participation rate among blacks fell by 0.7 percentage points, which coincided with a 0.7 percentage point decline in the black unemployment rate to 11.1 percent. The participation rate for Hispanics also fell by 0.7 percentage points, while their unemployment rate fell by 0.2 percentage points to 8.2 percent.
Other data in the household survey are consistent with this picture of a weakening labor market. The number of workers involuntarily working part-time rose by 176,000, approaching its peak for the slump. The share of unemployment attributable to people voluntarily leaving their jobs fell by 1.2 percentage points – again approaching its low for the slump. There was a sharp decline in both the median and average duration of unemployment spells, although this is consistent with the long-term unemployed leaving the labor market. The unemployment rate among women who maintain families rose back to 9.0 percent, its highest point since September, 1995.
There is very little positive information in this jobs report. Many analysts had hoped that the tax cuts, combined with the boost from high defense spending, would help jump start the economy. While there should be healthy growth from these factors over the next few months, the collapse of the mortgage refinancing boom will be a strong counteracting force in the near future. The first impact will be the collapse of an industry employing more than 350,000 people, but the longer term impact on consumption will prove far more important. If mortgage rates stay at current levels, the prospects for the economy beyond the second half of the year are bleak.
-30-