June 3, 2011
Weak Job Growth Leads to Further Rise in Unemployment
By Dean Baker
THE UNEMPLOYMENT RATE EDGED up again in May, reaching 9.1 percent, as
the rate of private-sector job growth slowed to just 83,000. There
were also downward revisions to the prior two months data, which
lowered the average for the last three months to 160,000,
approximately 70,000 more than what is needed to keep pace with the
growth of the labor force. Some of the weakness in May probably
stemmed from quirks that exaggerated April job growth. For example,
the retail sector reportedly added 64,000 jobs in April. It lost 8,500
in May. Health added 36,700 jobs in April, compared with an increase
of just 17,400 in May. Food manufacturing added 6,300 jobs in April,
it lost 7,000 in May. These are most likely quirks of seasonal
adjustments, not sharp shifts in the economy itself.
Taking a longer, three-month snapshot, there is not much that is very
encouraging. A loss of 5,000 jobs in manufacturing brings the average
gain over the last three months to 13,000. Construction added 2,000
jobs in May, bringing its average gain to 4,000. Job growth in retail
has averaged 16,700 over the last three months. Health care has added
an average of 28,000 jobs since February. The rate in restaurants has
Construction employment is likely to remain close to flat for the rest
of the year. Manufacturing may go back to adding jobs, but probably
only at a rate of around 10,000 per month. At that pace, it will take
two decades for employment to return to its pre-recession level.
One especially discouraging sign was the loss of 2,200 jobs in the
employment services sector following a weak gain in April. The weak
growth in this sector, coupled with the stagnation in hours, suggests
that job growth is not likely to accelerate soon. The weakness in the
private sector goes along with a government sector that lost 29,000
jobs in May and has lost an average of 24,300 jobs over the last three
Wage growth remains weak. Over the last three months the average
hourly wage increased at a 1.6 percent annual rate. This is down
slightly from its 1.8 percent rate of growth over the last year.
There was nothing in the household data to suggest a brighter picture.
The overall employment-to-population ratio (EPOP) was unchanged at
58.4 percent, just 0.2 percentage points above its low for the
downturn. The EPOP for African Americans fell by 0.3 percentage points
to 51.2 percent, hitting another new low for the downturn. The EPOP
for black men fell 0.8 percentage points to 56.1 percent, a new low.
The EPOP for black women was unchanged at its low for the downturn of
By education, the least educated are faring worse, with the EPOP for
workers without high school degrees falling 0.4 percentage points to
38.5 percent, also a low for the downturn. Interestingly the data on
unemployment by industry shows a sharp year-over-year drop for
construction. The 16.3 percent May rate is 3.8 percentage points below
the May 2010 level. The current rate suggests that unemployment in the
construction industry may at most be adding 0.3 percentage points of
Unemployment spells are again getting longer with both the mean and
median durations rising. The mean duration rose to 39.7 weeks, a new
high for the downturn.
There is very little positive news in this report. It should be viewed
in conjunction with the stronger growth in April, which makes the
picture somewhat better. However, even the 160,000 average growth over
the last three months was very weak for this stage in a recovery, and
there are more signs suggesting slower growth than any acceleration.
The decline in house prices seems sure to continue for the rest of the
year. This loss of wealth ($1 trillion since last summer) coupled with
wage growth that is lagging inflation will ensure weak consumption
growth. State and local governments will continue to make cutbacks,
and there is a strong likelihood of further cuts in federal spending
in the fiscal year beginning October 1. The unemployment rate may
continue to creep upward without new stimulus.