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.

02.01.08

The Employment Situation

Murat Tasci and Beth Mowry

Nonfarm payroll employment declined by 17,000 in January to 138,102.  This indicates the first decline in nonfarm employment since August 2003.  The total unemployment rate declined to 4.9 percent from the previous month’s 5 percent, mostly due to a 42,000 decline in the civilian labor force.  The Bureau of Labor Statistics (BLS) also revised its payroll employment numbers for the last two months.  The November payroll employment gain was revised downward, from 115,000 to 60,000, whereas the December payroll employment change was revised upward, from 18,000 to 82,000.  Overall, monthly payroll employment rose by 94,000 on average in the last quarter of 2007 and by 95,000 for the whole year.

Labor Market Conditions

       
Average monthly change
(thousands of employees, NAICS)
       
2004
2005
2006
2007
YTD
January
2008
Payroll employment
176
212
175
95
−17
  Goods-producing
26
32
3
−37
−51
    Construction
25
35
13
−19
−27
      Heavy and civil engineering
1
4
3
−1
−8
      Residentiala
10
11
−2
−10
−28
      Nonresidential b
2
4
7
1
9
    Manufacturing
−1
−7
−14
−22
−28
      Durable goods
8
2
−4
−15
−12
      Nondurable goods
−9
−8
−10
−7
−16
  Service-providing
148
179
172
132
34
    Retail trade
16
19
5
7
11
    Financial activitiesc
8
14
9
−8
−2
    PBSd
39
56
46
27
−11
      Temporary help svcs.
11
17
1
−7
−9
    Education and health svcs.
33
36
39
45
47
  Leisure and hospitality
26
23
32
30
19
  Government
14
14
16
19
−18
  Local educational svcs.
9
6
6
5
−4
       
Average for period (percent)
Civilian unemployment rate
5.5
5.1
4.6
4.6
4.9

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.

Large contributors to January’s job loss were construction (-27,000 jobs), manufacturing (-28,000), and government (-18,000).  Among these sectors, construction and manufacturing have been declining throughout the past year, falling by 19,000 and 22,000 per month on average, respectively.  Perhaps the main reason behind the decline in January’s report was the weak service sector.  Even though nonfarm payroll employment in services increased by 132,000 per month on average last year, it increased by only 34,000 in January, 2008, mostly led by a 47,000 gain in education and health services.

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.  Currently, the three-month moving average of private sector employment growth stands at 42,000, the lowest value since September 2003.

January’s diffusion index slipped to 46.2, indicating that more industries cut back payrolls than added to them. Once again, this index value is the lowest it’s been since August 2003. 

These numbers all point to a weak labor market in January, with many sectors worsening from the previous month.  However, as we always caution, monthly data are volatile and subject to revision.  Payroll gains in December and January are subject to revision in the next report.  The BLS also revises annual payroll numbers once a year, reflecting changes in seasonal adjustment factors and updates to the industrial classification system.  The revision released with January’s employment report also affected the past several years.  As a result of this revision, the average monthly change in nonfarm payroll employment declined from 111,000 to 95,000 for 2007, and from 189,000 to 175,000 for 2006, and virtually did not change for 2004 and 2005.

Labor Market Conditions and Revisions

       
Average monthly change 
(thousands of employees, NAICS)
       
November
current
Revision to
November
December
current
Revision to
December
January
2008
Payroll employment
60
−55
82
64
−17
  Goods-producing
−52
−7
−61
14
−51
    Construction
−57
−20
−45
4
−27
      Heavy and civil engineering
−0.5
2
−4.9
−1
−8
      Residentiala
−52.4
−23
−32.3
−4
−28
      Nonresidentialb
−4.3
1
−8.1
9
9
    Manufacturing
−3
10
−20
11
−28
      Durable goods
2
4
−19
1
−12
      Nondurable goods
−5
6
−1
10
−16
  Service-providing
112
−48
134
50
34
    Retail trade
44
12
−12
12
11
    Financial activitiesc
−23
−7
−1
3
−2
    PBSd
9
−30
70
27
−11
      Temporary help svcs.
−8
−20
−7
−7
−9
    Education and health svcs.
32
3
56
12
47
  Leisure and hospitality
24
−11
22
0
19
  Government
16
−12
28
−3
−18
  Local educational svcs.
5
−5
14
−3
−4

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.