Labor Market Continues to Strengthen

For the seventh successive month both the household survey and the employer survey agree in showing noticeable improvements in the health of the job market. For most Americans the major good news is the continued drop in the unemployment rate. After showing little change over the first half of last year the jobless rate has now fallen 0.8 percentage points since last August, falling to 8.3% in January. Because of revisions in Census estimates of the size of the adult population, it is hard to know how much of the drop in the seasonally adjusted unemployment rate is due to an increase in the number of adults who report they are employed.

Focusing on the adult population between 25 and 54 may be helpful, since the population revisions had only a small impact on this population’s employment rate and no effect whatsoever on its unemployment rate. One fairly robust indicator of job market health is the percentage of adults between 25 and 54 who are employed. This fraction rose 0.3 percentage points in January, reaching a level last seen in the summer of 2009. We still have a long way to go to reach full employment. The percentage of 25-54 year-olds who hold jobs is still 4.3 percentage points lower than it was at the end of the last economic expansion.

The latest payroll survey offers further evidence of a strengthening labor market. On a seasonally adjusted basis the number of private payroll jobs increased 257,000 in January. Since September private employers have added nearly 200,000 workers a month to their payrolls. The gains in the private sector have been partly offset by employment cuts in the government sector, mainly in state and local government. The government employment losses have slowed, however. In the past six months public payrolls shrank an average of 10,000 employees a month; in the previous six months they shrank 36,000 a month. The net monthly increase in public and private payrolls combined has been fast enough to produce a steady decline in the unemployment rate. The pace of employment gains remains too slow, however, to bring the nation to full employment anytime soon.

BLS revisions in the payroll statistics added to estimated job growth in 2011. The revisions added a total of 180,000 to previous estimates of 2011 job growth, mostly in the first half of the year. The latest payroll numbers also suggest there has been a modest rebound in the fortunes of the construction industry. Employment in the industry has increased 116,000, or about 2%, since January 2011, with most of the increase occurring after August. The construction industry remains very weak, however. Employment in January 2012 was down more than a quarter compared with construction payrolls in December 2007. Manufacturing has also been a bright spot in recent months. The number of manufacturing jobs increased 50,000 in January, and manufacturers have added an average of nearly 20,000 employees a month to their payrolls during the past year.

Recent job gains in construction and manufacturing should be put in perspective, however. Service-producing employers in the private sector are the source of an overwhelming share of net new employment in the United States. Since January 2011 the private service sector has accounted for four-fifths of private-sector job growth and more than nine-tenths of overall job growth. Even if there is a renaissance in U.S. manufacturing and a long-overdue rebound in construction, that basic story is not going to change.