Meet the Author

Peter Rupert |

Senior Research Advisor

Peter Rupert

Peter Rupert was formerly senior economic advisor in the Research Department at the Federal Reserve Bank of Cleveland. His areas of specialization include labor economics and applied econometrics.

02.05.07

Economic Trends

The Employment Situation

Peter Rupert and Cara Stepanczuk

Nonfarm payrolls increased by 110,000 net jobs in January, down from December and about 40,000 lower than expected—a muted start to the year. However, 2006 ended with a bang: November and December payrolls were revised upward a net 103,000 jobs, raising the fourth quarter’s average monthly increase to 170,000.

Service-providing industries continue to contribute the most jobs (104,000 in January), but have lost a lot of steam since the 2006:IVQ average contribution of 205,000 jobs. Education and health services grew the most over the month, adding 31,000 net jobs. Professional and business services grew by 25,000, and leisure and hospitality grew by 23,000. Construction’s 22,000 payroll increase helped goods-producing industries post their first net monthly gain since August 2006. However, weakness in motor vehicles and parts; computers and electronics; furniture; and textiles caused a net loss of 16,000 manufacturing jobs.

Labor Market Conditions

  Average monthly change
(thousands of employees, NAICS)
2003 2004 2005 Jan.-
Dec. 2006
Jan. 2007
Payroll employment
9
172
212
187
111
  Goods-producing
–42
28
32
9
7
  Construction
10
26
35
12
22
  Manufacturing
–51
0
–7
–7
–16
  Durable goods
–32
8
2
–1
–28
  Nondurable goods
–19
–9
–9
–6
12
  Service-providing
51
144
180
178
104
  Retail trade
–4
16
19
–4
4
  Financial activities*
7
8
14
15
4
  PBS**
23
38
57
42
25
  Temporary help svcs.
12
11
18
–1
5.7
  Education and health svcs.
30
33
36
41
31
  Leisure and hospitality
19
25
23
37
23
  Government
–4
14
14
20
14
  Average for period (percent)
Civilian unemployment rate
6.0
5.5
5.1
4.6
4.6

*Financial activities include the finance, insurance, and real estate sector and the rental and leasing sector.
** 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: U.S. Department of Labor, Bureau of Labor Statistics.

enlarge: table text

The employment situation was dramatically altered by the BLS’s annual benchmark revision from April 2005 to March 2006 (seasonally adjusted data were revised from 2002 onward). Whereas the average revision over the prior 10-year period was +/–0.2 percent, this year’s was 0.6 percent, which translated into an increase of 752,000 jobs.

Although no sector changed significantly more than others, there were a few notable industries. Professional and business services posted the largest upward revision, up 230,000 jobs (1.3 percent growth). Construction also changed for the better, reporting a net gain of 189,000 jobs (2.6 percent growth). Trade, transportation, and utilities pitched in another 158,000 jobs (0.6 percent growth). However, the revisions showed that the manufacturing sector did worse than previously thought, losing an additional 21,000 jobs (–0.1 percent growth). The information industry did not weather the storm of revisions, either; it lost 15,000 (–0.5 percent growth).

The BLS has offered several reasons for the extreme revisions. Employment estimates for September–October 2006 (post–Hurricane Katrina) allowed more error than usual. Only part of the error was associated with the model-based estimation process for employment in new establishments, the typical source of annual revisions. Most of the employment revisions resulted from an “accumulation” of smaller sources of error, according to the BLS.

The household survey was also adjusted for population controls, but the update applies only to 2007 data. Even with the adjustment, the unemployment rate, labor force participation rate, and employment-to-population ratio were essentially unchanged in January.