Continued Weakness in Payroll Gains, but Good News on Unemployment

For the second month in a row the BLS employer survey showed slowing job gains compared with the average gains in the previous 17 months. Between July 2012 and November 2013, monthly payroll increases averaged 198,000 and never dipped below 141,000. Payrolls rose only 113,000 in January following an estimated gain of just 75,000 in December.

As usual, January’s job gains occurred entirely in the private sector, where estimated payrolls increased 142,000. Public sector employment fell 29,000 in January following payroll losses of 14,000 in December. Government payrolls have fallen every year since 2009 erasing 8% of the private sector payroll gains that have occurred since December 2009. Since the end of the last economic expansion in December 2007 the number of payroll jobs has shrunk 851,000. Two-thirds of the total job loss occurred in the government sector.

One remarkable source of weakness in the payroll numbers was the health care sector. For the first time in many years the BLS reports virtually no change in employment in the health sector for two successive months. Between January 2004 and November 2013, monthly payroll gains in the sector averaged almost 23,000 per month. Even in the two recession years of 2008-2009, employment gains in the health industry averaged 23,000 a month. It seems likely the slowing growth of employment in the health sector is traceable to the slowing rise of health expenditures in the wider economy. If the government and employers are successful in restraining cost increases in health care, an inevitable result will be pressure on health providers to reduce their employment costs.

Other industries saw faster payroll gains in January. More than half of private-sector employment gains occurred in goods-producing industries. The construction industry added 48,000 to payrolls after shrinking in the previous month. Manufacturing payrolls also rose 21,000 in January, about the average increase of the previous three months. Employment in professional and business services rebounded in January after a month of modest job gains in December. One indicator of continued strength in employer demand is employment in the temporary help services industry. Employment in this industry rose by 8,100 in January, though this is a slower pace of growth than we have seen in recent years.

BLS reported revisions in its previous estimates of job gains in 2013 and earlier years. The revisions added to previously reported employment increases. Total job gains in 2013 were revised upward by 136,000, and the new estimates show that employment gains in October and November were 70,000 larger than reported last month. Thus, even though payroll gains were disappointing in December and January, average monthly employment gains last year were significantly faster than previously reported.

In contrast to disappointing January job gains reported by employers, the household survey showed much more robust employment increases. The number of adults who report being employed rose 638,00 in January, pushing down the unemployment rate to 6.6%, the lowest level since October 2008. A more comprehensive measure of labor market distress, the so-called “U-6” unemployment and underemployment estimate, fell 0.4 percentage points in January, its approximate level in November 2008 when joblessness began to climb rapidly.

The labor force participation rate increased 0.2 percentage points in January, offsetting the decline reported in December. Over the past year the labor force participation rate has fallen 0.6 percentage points, partly because of the aging of the population (which increases the proportion of adults past retirement age) and partly because of continued weakness in the job market (which discourages some adults from seeking a job). The employment-population rate increased 0.2 percentage points in January, suggesting we are slowly closing the gap between actual employment and the employment rate we would expect at full employment. The month’s drop in unemployment is thus traceable to employment gains rather an increase in the number of labor force dropouts.