A Mildly Discouraging Update on the Job Market

The latest BLS jobs report offers evidence of continuing weak recovery in private sector employment. The number of private-sector payroll jobs increased by 67,000 in August, a little below the average monthly gain of 95,000 private-sector jobs since the start of the year. Because government employment continued to shrink last month the total number of payroll jobs fell 54,000.

In contrast to the payroll survey, the household survey showed a jump in employment. According to the household survey there were 290,000 newly employed workers. However, employment gains in this survey often show a great deal of month-to-month variability. So far in 2010 the household survey shows a gain in the number employed Americans of slightly more than 180,000 per month. This average certainly suggests the job market is recovering, but at a painfully slow pace given the severity of the 2008-2009 recession.

In spite of the rise in employment in the household survey, the unemployment rate edged up one-tenth of a percentage point to 9.6%. That’s because many adults rejoined the labor force after a dip in the labor force participation rate in the previous month. One piece of good news in the jobs report is the decline in the number of unemployed suffering in long spells of unemployment. The number of workers in unemployment spells lasting 6 months or longer fell 323,000 in August. Since reaching a peak in May 2010, the number of unemployed workers in long unemployment spells has fallen by 514,000, or about 7.6%. We should remember, however, that the extent of long-term unemployment remains far worse than it has been in any recession since World War II. The average duration of an unemployment spell in August was almost 60% longer than the peak duration of unemployment after the 1981-1982 recession, the worst post-war recession before the one that began in December 2007.

According to the payroll survey, government employment losses in August more than offset the gains in private-sector employment. Most of the drop in public-sector payrolls is explained by the departure of 114,000 temporary Census workers. However, state and local government payrolls also continued to shrink in August. Since the start of this year state and local public-sector payrolls have fallen 135,000, or almost 17,000 per month. These job losses are almost certainly linked to the expected end of federal fiscal relief under the Administration’s stimulus program. Earlier in the recession public-sector employment was a bright spot in an otherwise gloomy employment picture. In spite of a huge falloff in state and local tax revenues, federal fiscal relief permitted state and local governments to maintain their payrolls. With weak revenues and poor prospects of future federal fiscal relief, state and local governments are now trimming their payrolls. The trend could continue for a number of months unless there is a sizeable pickup in local tax revenues.