Meet the Author

Timothy Dunne |

Vice President

Timothy Dunne

Timothy Dunne is a former vice president and economist of the Federal Reserve Bank of Cleveland.

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Meet the Author

Kyle Fee |

Economic Analyst

Kyle Fee

Kyle Fee is an economic analyst in the Research Department of the Federal Reserve Bank of Cleveland. His research interests include economic development, regional economics and economic geography.

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09.08.11

Economic Trends

Treading Water

Timothy Dunne and Kyle Fee

August’s employment report showed that the labor market is treading water. Payroll employment showed no change in August, and the unemployment rate remained stuck at 9.1 percent. Private payrolls expanded by a very modest 17,000 jobs, which was offset by a contraction in the government sector of 17,000, attributed mostly to declines in local government education (−13,700). Since the end of the recession, state and local government employment has declined by 603,000 workers or −3.1 percent, a clear reflection of the stress on state and local government budgets.

Part of the weakness in the current month’s private-sector payroll data is transitory, as a strike by workers in the telecommunications industry reduced employment by 45,000. The strike occurred during the data collection week of August 8 to 12, but the workers involved have subsequently returned to work. Still, across the board, the numbers were very weak—most private industry sectors showed little change in employment, with very modest gains in health care and professional services. To put an exclamation point on the anemic nature of the report, both June and July were revised downward, with a collective reduction to payroll employment of 58,000 jobs. Thus, over the last three months, employment gains have averaged a mere 35,000 workers—a rate well below what is required to bring down unemployment.

Nothing else looked strong from the payroll side of the report. Average weekly hours declined, and the Bureau of Labor Statistics’ (BLS) overall index of aggregate hours actually fell. This index incorporates both changes in employment and changes in hours, so it reflects overall labor utilization in the economy. Indeed, this index shows that aggregate labor hours are below those seen in April 2011, illustrating the general weakness of the labor market over this past summer. On the compensation side, hourly wages and weekly earnings declined, as well.

The weakening trends in payroll employment growth are seen in the BLS’ diffusion indexes. These indexes measure the percent of industries expanding their employment. The indexes provide an indication of how broad-based employment gains or losses are across industries. A value of 50 implies that the number of industries expanding and the number of industries contracting is essentially balanced. The three-month and six-month indexes measure changes over the last three-month and six-month intervals, respectively. One sees a sharp decline in both these indexes in August, reflecting the muted gains in payrolls evident in the recent employment reports. While not shown, the one-month diffusion index for August came in at 52.5, indicating that the number of expanding and number of contracting industries are close to even at this point in the recovery. Note that these indexes do not include the government sector, which has been steadily declining over 2011.

The household side of the report yielded more of the same. The unemployment rate held steady at 9.1, while the employment-to-population ratio hovered near decadal lows and the labor-force participation held close to steady at 64.0 percent.

The disappointing labor market performance reflected in this month’s report is symptomatic of the weakness seen in the overall labor market recovery since the end of the recession. Over this time period, the U.S. economy has generated a net increase in payroll employment of 639,000 jobs (0.5 percent) or only 25,000 jobs per month. Looking across the industrial sectors, the only sectors that have experienced a decent employment recovery are mining and logging, professional and business services, and education and health. In fact, of the 12 major industrial sectors, five have actually contracted employment during the recovery.

If you were looking for “rebounds” of industrial sectors that have been especially hard hit during the last recession, you just do not find it. Indeed, the opposite is true. Industries that experienced above-average employment losses during the recession have tended to have weak employment growth during the recovery cycle. Employment growth during the recession is actually positively correlated with employment growth during the recovery—the exact opposite of what you would expect if you were expecting rebound effects. Moreover, industries with higher employment growth in the period prior to the last recession have tended to have higher employment growth in the current recovery.

There are exceptions. In particular, the construction sector stands out. From 2002 to 2006, the construction sector was one of the faster-growing sectors with regard to employment. However, in the recovery phase, it has been by far the weakest performer.