A Weakening Job Market

Payroll employment gains vanished in August. According to initial estimates just published by the BLS, small employment gains in the private sector were exactly offset by small employment losses in government. In addition, revisions in employment totals for June and July eliminated more than a third of the previously estimated job gains in those months. Thus, not only was payroll growth slower than it has been in any month since September 2010, revisions in previous months’ job totals suggest that employment growth so far this year has been slower than we thought.

The household survey gives a brighter picture of employment gains in August. According to that survey, employment rose about 330,000 compared with July. The percentage of the adult population holding a job edged up 0.1 percentage point from the recent historical low attained in July. Unfortunately, the August employment gains recorded in the household survey were not large enough to offset employment losses recorded in June and July. In the four months ending in August 2011, the household survey shows a decline in (seasonally adjusted) employment of about 12,000 per month. Thus, both the household and the employer surveys show employment gains that are substantially slower than what is needed to keep up with the growth of the working-age population.

Even though the August job picture is rosier in the household survey than in the Labor Department’s employer survey, the longer term picture is bleaker. In the 20 months since U.S. employment gains began after December 2009, the number of employed Americans in the household survey has increased about 1.7 million or 1.2%. Over the same period, payroll employment in the employer survey has increased 1.8 million or 1.4%. Both surveys show that employment gains during the recovery have been too slow to put a dent in the nation’s unemployment rate. Even worse, both surveys show that employment gains have slowed dramatically since April of this year.

At the moment, the main problem in the job market is not a high layoff rate but an anemic pace of hiring. According to the Labor Department’s JOLTS survey, the monthly rate of job separations remains well below the level we saw early in the recession. In fact, the separation rate is lower than it was near the end of the last economic expansion. However, the new hire rate remains stubbornly below the rate in the last expansion. Private employers are not adding to their payrolls because they do not see good prospects for boosting future sales. The latest jobs report is likely to dampen their optimism still further.