A Check on Job Market Euphoria

After six months of impressive job gains, the latest BLS employment report shows a sizeable slowdown in the pace of job growth. Between August 2011 and February 2012 monthly gains in payroll employment averaged slightly more than 200,000. In March employers reported an increase of just 120,000 jobs. All the job gains in recent months have been concentrated in the private sector. Government employment has been trending down. Thus, most of the drop in job growth was the result of slower rates of net hiring in the private sector.

The same falloff of employment gains is evident in the household survey. In the six months ending in February, the BLS found robust employment gains in the household survey. As a result, the unemployment rate fell 0.8 percentage points to 8.3%. In contrast, the March survey showed a small decline in the number of adults who report holding a job (-31,000). The unemployment rate fell because the labor force shrank by 164,000, reducing the number of jobless adults who were active job seekers.

The employer survey helps pinpoint the sectors where weakening has occurred. Two industries stand out. Employment in retail trade fell 34,000 in March. On average over the previous six months retail employment had increased by a monthly average of 11,000. Temporary help services employment fell slightly (-7,500), but this was a sizeable turnaround compared with the previous six months. Between August 2011 and February 2012 employment in the temporary help services industry climbed an average of 28,000 a month. Thus, the turnaround in temporary help employment accounts for about 36,000 of the falloff in job gains in March compared with the previous six months. Payroll changes in the temporary help industry often offer a signal of employers’ hiring intentions in coming months. The abrupt turnaround in temporary help employment growth may indicate weaker job gains in the next few months.

Employment prospects in the construction industry also remain bleak. Since the end of the last economic expansion in 2007, payroll employment in construction has shrunk 1.94 million, or about 26%. We have seen virtually no recovery of employment in this industry since the economic recovery began in late 2009. Construction employment slipped again in March (-7,000) following a similar job loss in February.

There were some bright spots in the March report. Manufacturing continues to enjoy job gains. Manufacturing employment rose 37,000 in March, about the same rate of payroll gain we have seen since last November. Education and health services also continued to grow in March. Employment rose 37,000, similar to the average rate of employment gain seen in recent months. Government payrolls were slightly smaller in March (-1,000), but this actually represents a small improvement compared with earlier months. On average in the six months through February, government payrolls declined an average of 11,000 a month. In general, job losses in the public sector have been shrinking in recent months. In the six months through July 2011, public payrolls fell 36,000 a month.

In sum, the March 2012 employment report shows little progress toward reaching full employment. The unemployment rate fell because fewer jobless workers were actively seeking a job, not because more Americans found one. The employer survey showed payroll gains of 120,000, but this is only slightly faster than the rate of job gain needed to keep up with the growth in the working-age population. After six months of robust job gains, a mediocre report in March may signal the start of slower improvements in the next few months.