Economic Research and Data

Economic Trends

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01.10.07
Labor Market Conditions

The December employment data showed far more job growth than most had predicted. The Bureau of Labor Statistics (BLS) reported that nonfarm payroll employment increased by 167,000 that month (preliminary estimate), building on November’s unexpectedly strong upward revision of +154,000 jobs.

Average Monthly Nonfarm Employment Change


Source: Department of Labor, Bureau of Labor Statistics.

 

Service-sector jobs continued to increase at a relatively strong pace (up 178,000), whereas manufacturing jobs were still declining (off 12,000). For 2006, the service sector added a net monthly average of 151,000 jobs; manufacturing employment, on the other hand, fell by 6,000 jobs monthly. Professional and business services drove the service sector’s jobs growth in December (as it did over most of the year), with a net gain of 50,000 in December and 420,000 jobs total during 2006. Health care followed closely, adding 31,000 new jobs for the month and 324,000 for the year as a whole. December’s loss of construction jobs was small (–3,000) and, in light of the sector’s 53,000 net job loss during October and November, suggests that construction activity may have begun to level off at year’s end.

 

Labor Market Conditions

      Average monthly change
(thousands of employees, NAICS)
      2003 2004 2005 Jan.-
Nov. 2006
Dec 2006
Payroll employment
9
175
165
152
167
Goods-producing
–42
28
22
3
–11
  Construction
10
26
25
4
–3
    Manufacturing
–51
0
–6
–5
–12
    Durable goods
–32
9
1
0
–6
    Nondurable goods
–19
–9
–7
–5
–6
  Service-providing
51
147
143
149
178
    Retail Trade
–4
17
13
–4
–9
    Financial activities*
7
8
12
13
9
    PBS**
23
40
41
34
50
    Temporary help svcs.
12
13
14
–3
15
    Education & health svcs.
30
33
31
37
43
    Leisure and hospitality
19
26
21
29
31
Government
–4
13
14
21
17
      Average for period (percent)
    Civilian unemployment rate
6.0
5.5
5.1
4.6
4.5

a. Financial activities include the finance, insurance, and real estate sector and the rental and leasing sector.
b. PBS is Professional Business Services (professional, scientific, and technical services, management of companies and enterprises, administrative and support, and waste management and remediation services.
Source: Department of Labor, Bureau of Labor Statistics.

 

The strength in the December jobs report was especially surprising, given that earlier in the week, the ADP Employer Services’ survey of 307,000 businesses (covering about 18 million payroll workers) showed a decline of 40,000 jobs during the month. The survey results may have led some analysts to reduce their estimates of labor market strength—two major investment houses reportedly cut their December jobs growth projections by roughly 40,000 to 50,000 jobs after the ADP survey was released.

 

Long-term Manufacturing and Service Industry Changes


Source: Department of Labor, Bureau of Labor Statistics, January 2006.

 

Predicting job growth is no easy task, not even for the BLS, which adjusts its estimates on the basis of incoming payroll data as they are reported by businesses. The BLS has made substantial revisions to their preliminary estimates over the past few months: The first published estimate for September showed a 51,000 job increase; the second preliminary estimate showed an increase of 148,000 jobs; and the final estimate for the month reported an increase of 203,000—four times the original estimate. The point here is a cautionary one: Take care when examining monthly changes in the employment data. Recent revisions have revealed that the U.S. labor market was considerably stronger than the preliminary jobs report led us to believe. The BLS acknowledges that recent revisions have been somewhat high, but notes that “the overall magnitude of revisions has held steady in recent years” and further, that “the revisions have not been either predominantly upward or predominantly downward.”

 

Revisions on Monthly Payroll

*November received the first revision only, and December has not yet been revised.
Source: Department of Labor, Bureau of Labor Statistics.




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