[lbo-talk] The real thing?

[C. G. Estabrook]

[Doug, here's another take on the suggestion that the U.S. economy may be
looking better over the last couple of weeks. --CGE]

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-