Bad News in March: Tepid Job Gains and a Shrinking Workforce

Employers added only 88,000 workers to their payrolls in March, far off the pace of job gains in the previous six months. Between August 2012 and February 2013 payrolls grew at an average rate of 197,000 a month; private payrolls rose slightly faster than 205,000 a month. The much slower pace of job gains in March may foreshadow a slowdown in payroll growth over the next few months as fiscal contraction at the federal level begins to bite.

Employment gains reported in the household survey show an even bleaker picture of the job market. The number of adults in the household survey who report holding a job fell 206,000 in March, capping a 5-month period in which reported employment losses have averaged 34,000 a month.  The unemployment rate declined 0.3 percentage points between October and March, and 0.1 percentage point in March, because the labor force shrank an average of 137,000 a month during the period.* The labor force participation rate reached a 35-year low in March, dipping to just 63.3% of the adult population. The last time the participation rate was this low was in the Carter Administration.

A small part of the recent drop in the labor force is traceable to population aging. The large baby boom generation is now in its 50s and 60s, ages when participation in the workforce falls rapidly. However, most of the drop since last November is explained by continued weakness in the job market and the decline in the availability of long-term unemployment benefits. When it is hard to find a job, some workers become discouraged and stop looking. Others who would be expected to join the workforce fail to do so. Some workers who cease looking do so because they’ve exhausted their eligibility for unemployment benefits. In order to collect an unemployment check nearly all laid-off workers must actively search for a new job. They have less reason to pore over want ads and pound the pavement when their unemployment check stops. As the maximum duration of regular and extended benefits has been scaled back, laid-off workers are now exhausting their unemployment benefits sooner after a layoff than was the case a year or two ago.

The March jobs report shows some continued areas of strength. The average workweek edged up 0.1 hours. Employment in the construction industry increased for the 10th consecutive month, though at a slower pace. Professional and business services and the health care sector also showed continued strength. Retail employment, however, fell 24,000 after enjoying a year of solid gains.

As usual, government payrolls shrank in March, falling 7,000, about the average rate of monthly decline in the previous year. Federal government employment declined 14,000 in March, more than offsetting small gains in state and local government employment. The drop in federal government payrolls accounts for almost two-thirds of the overall drop in public employment over the past year. Policymakers in Washington seem intent on scoring an own goal. Not only have they adopted fiscal policies that weaken demand for private-sector workers, they are directly contributing to the nation’s job woes by trimming the government workforce and reducing the annual pay of federal employees. Job seekers will have to hope that continued strength in the private sector prevails against these headwinds.

* The estimated 5-month changes in employment and the labor force account for BLS’s annual population adjustments in January.