Meet the Author

Murat Tasci |

Research Economist

Murat Tasci

Murat Tasci is a research economist in the Research Department of the Federal Reserve Bank of Cleveland. He is primarily interested in macroeconomics and labor economics. His current work focuses on business cycles and labor markets, labor market policies, and search frictions.

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Meet the Author

Beth Mowry |

Research Assistant

Beth Mowry

Beth Mowry was formerly a research assistant in the Research Department of the Federal Reserve Bank of Cleveland. Her work focuses on labor markets and business cycles.

01.09.08

Economic Trends

The Employment Situation

By Murat Tasci and Beth Mowry

The labor market created a mere 18,000 jobs in December, falling well below expectations, as well as November’s upwardly-revised 115,000 figure. The December report was the weakest since August of 2003, and the unemployment rate increased to 5.0 percent from 4.7 percent in the previous month.  However, the average monthly job gain for the fourth quarter stands at 97,000, which is still better than the third quarter’s average of 77,000, and indicates moderate growth.

Large contributors to December’s weakness were construction (−49,000 jobs), manufacturing (−31,000), and retail trade (−25,000).  These losses reflect the continuing housing downturn and the cautious retail environment.  All three of these sectors, especially construction, worsened considerably since November’s report.  Residential construction, for example, lost 28,000 jobs, compared to November’s loss of 8,000.  Nonresidential construction also suffered, losing 17,000.  Within the manufacturing sector, the lone job creators were food manufacturing, machinery, and chemicals.  Among the subsectors struggling the most were computer and electronic products; motor vehicles and parts; and plastics and rubber products. 

Services were the bright spot in the report, adding 93,000 jobs.  Professional business services (43,000), education and health services (44,000), and government (31,000) were the strongest contributors within the category.  All three of these sectors have been relatively consistent pillars of job growth in 2007.  Management and technical consulting services added 12,300 jobs, and architectural and engineering services added 7,500.  Leisure and hospitality also fared particularly well, with food services and drinking places adding 26,600 jobs, and healthcare adding 27,900.  Although services created the most jobs in December, this month’s growth in the sector fell far short of that in  November (160,000), as well as the year’s monthly average for services (142,000).

Labor Market Conditions

       
Average monthly change(thousands of employees, NAICS)
       
2004
2005
2006
2007
YTD
December
2007

Payroll employment

172
212
189
111
18
 

Goods−producing

28
32
9
−31
−75
   

Construction

26
35
11
−16
−49
   

Heavy and civil engineering

2
4
2
−1
−2
   

Residentiala

9
11
−2
−8
−28
   

Nonresidentialb

3
4
6
0
−17
   

Manufacturing

0
−7
−7
−18
−31
   

Durable goods

8
2
0
−12
−20
   

Nondurable goods

−9
−9
−6
−5
−11
 

Service-providing

144
180
179
142
93
   

Retail trade

16
19
−3
4
−24
   

Financial activitiesc

8
14
16
−2
−4
   

PBSd

38
57
42
26
43
   

Temporary help services

11
18
−1
−4
0
   

Education and health services

33
36
41
47
44
 

Leisure and hospitality

25
23
38
30
22
 

Government

14
14
20
23
31
 

Local educational services

8
6
11
8
17
       
Average for period (percent)

Civilian unemployment rate

5.5
5.1
4.6
4.6
5.0

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.

The three-month moving average of private sector employment growth shows a definite declining trend over the past year, and even more broadly over the past two years.  This trend discounts the constant positive effect the government sector has had.

December’s diffusion index slipped to 48.4, indicating that more industries cut back payrolls than added to them.  The last time the index fell below the neutral 50 mark was way back in September 2003. 

These numbers overwhelmingly point to a weak December labor market, with almost all sectors worsening from the previous month.  However, monthly data are volatile and subject to revision.  The Bureau of Labor Statistics revised October’s initial 170,000 payroll gain down to 159,000, and November’s initial 94,000 was revised up to a gain of 115,000.  Payroll gains in November and December are subject to revision in the next report.

Labor Market Conditions and Revisions

       
Average monthly change(thousands of employees, NAICS)
       
October current

Revision to October

November
current

Revision to November
December
2007

Payroll employment

159
−11
115
21
18
 

Goods-producing

−43
−21
−45
−12
−75
   

Construction

−20
−11
−37
−13
−49
   

Heavy and civil engineering

1.5
2.1
−2.1
2.4
−2
   

Residentiala

−13.7
−4.1
−9.9
−2.7
−28
   

Nonresidentialb

−3.3
−1.3
−2.4
−1.7
−17
   

Manufacturing

−23
−8
−13
−2
−31
   

Durable goods

−17
−8
−2
−1
−20
   

Nondurable goods

−6
0
−11
−1
−11
 

Service-providing

202
10
160
33
93
   

Retail trade

−20.4
−5.4
32
8
−24
   

Financial activitiesc

−2
0
−16
4
−4
   

PBSd

70
6
39
9
43
   

Temporary help services

22.9
−4.9
11.6
0.3
0
   

Education and health services

49
5
29
1
44
 

Leisure and hospitality

47
1
35
9
22
 

Government

49
11
28
−2
31
 

Local educational services

35.3
5.2
9.6
−0.2
17

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.