Economic Research and Data

Economic Trends

Filling you in on the current state of the economy

09.14.07

Economic Activity and Labor

The Employment Situation

In August, the economy lost jobs for the first time since August 2003. The unemployment rate remains about the same, but this is because both household employment (−316,000) and the labor force (−340,000) declined sharply. The drop of 4,000 jobs was considerably below the market’s expectation of about a 100,000 job gain. In addition, job gains in the prior two months were revised down by a combined 81,000 jobs; the June number was revised down to 69,000 from 126,000, and the July number was revised down to 68,000 from 92,000. (See Revisions to Employment Report for more detail about the revision.) Accompanied by the downward revisions, this report suggests that there has been a noticeable slowing in employment growth during the summer months.

The signs of a softening labor market were broadly observed across sectors, as most sectors expanded at slower rates than in recent months or declined. Losses centered particularly in the goods-producing sectors. Manufacturing employment declined by 46,000 jobs, the sector’s largest loss since July 2003. The construction industry lost 22,000 jobs last month, largely because specialty residential contractors lost 18,000 jobs. The housing market has been declining rapidly since late 2005. However, overall construction employment has been relatively stable over the year due to solid growth in nonresidential construction (see the article on construction employment in the March 2007 issue of Economic Trends). Nonresidential construction continued to grow in August, adding 5,000 jobs. But it was not enough to offset the sharp decline in residential construction.

Labor Market Conditions

 
Average monthly change
(thousands of employees, NAICS)

 

2004

2005

2006

YTD 2007

Aug 2007

Payroll employment
172
212
189
125
−4
Goods-producing
28
32
9
−13
−64
Construction
26
35
11
−5
−22
Heavy and civil engineering
2
4
2
0
−3
Residentiala
9
11
−2
−3
−23
Nonresidentialb
3
4
6
1
5
Manufacturing
0
−7
−7
−12
−46
Durable goods
8
2
0
−11
−30
Nondurable goods
−9
−9
−6
−1
−16
Service-providing
144
180
179
138
60
Retail trade
16
19
−3
9
13
Financial activitiesc
8
14
16
7
0
PBSd
38
57
42
17
6
Temporary help svcs.
11
18
−1
−8
−13
Education and health svcs.
33
36
41
50
63
Leisure and hospitality
25
23
38
27
12
Government
14
14
20
10
−28
Local educational svcs.
8
6
11
−3
−32
 
Average for period (percent)
Civilian unemployment rate
5.5
5.1
4.6
4.5
4.6

a. Includes construction of residential buildings and residential specialty trade contractors.
b. Includes construction of nonresidential buildings and nonresidential specialty trade contractors.
c. Financial activities include the finance, insurance, and real estate sector and the rental and leasing sector.
d. 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: Bureau of Labor Statistics.

Despite the loss of jobs in the goods-producing sector, total private payrolls continued to add jobs in August, thanks to an 88,000 job increase in the private service sector. However, the 24,000 job gain in private payrolls was more than offset by a 28,000 job decline in government payrolls. Most of this decline came from local government educational service, which shed 31,000 jobs, following a large decline in July (−50.3 after the revision). The local educational services series consists of anyone who falls onto local school payrolls, predominantly teachers, administrators, and staff. Employment in this series is very seasonal, and the numbers can be erratic. In fact, most of the revisions in June and July were due to downward revisions in local government educational services, which reflect unusually slow seasonal hiring at schools. If such weakness simply reflects a delay in hiring that normally takes place during the summer months, government employment may improve, as hirings occur in September.

Although service-providing sectors continued to expand in 2007, the revised numbers suggest that growth rates have dramatically declined in recent months. The average monthly gain over the last three months now stands at 72,000, compared to the average of 179,000 in 2006. Excluding government, the same three-month average gain for private services stands at 100,000, compared to the average of 159,000 in 2006. Recent turmoil in the mortgage market has been an issue in the financial markets. In August, employment in financial services was unchanged in the aggregate. Depository credit intermediation, which includes commercial banking, added 3,000 jobs. But the other component in credit intermediation, which includes nondepository financial intermediaries, lost 9,000 jobs a (2.8 percent decline from the peak in September 2006).

Overall, this report, along with the downward revisions to prior months, suggests that labor market has been softening faster than economists had previously thought. When the payroll figures were adjusted to take into account the effect local educational services have had over the past three months, private payrolls continued to add jobs but at a slightly more sluggish rate. However, the three-month moving average of private payroll growth is not far off the range it has been in since 2004. More disconcerting are the signs of weakness found in some sectors that often lead the aggregate labor market. Steeper declines in durables, in particular in industrial machinery (−7,000) imply that business activity may decelerate further. Temporary help employment, which is often viewed as a leading indicator of the labor market, also continued to decelerate in August.

Economic Trends is published by the Research Department of the Federal Reserve Bank of Cleveland.

Views stated in Economic Trends are those of individuals in the Research Department and not necessarily those of the Federal Reserve Bank of Cleveland or of the Board of Governors of the Federal Reserve System. Materials may be reprinted provided that the source is credited.

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