Payroll Gains Are in Low-Paying Jobs

 | Jan 06, 2012 | 10:18 AM EST  | Comments
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On the surface, the headline job gain of 200,000 and drop in the unemployment rate to 8.5% from 8.7% (revised) is great news. But we need to dig further into the details of the jobs report to see where those jobs are being created.

It turns out they were in mostly low-paying industries and existing workers are not seeing their paychecks increase with inflation.

With that in mind, consider the following sectors where we see the most job growth:

  • Accommodation and food service: 24,700 new jobs
  • Retail: 27,900 new jobs
  • Transportation and warehousing: 50,200 new jobs.  Most of these were in courier services, and the Bureau of Labor Statistics noted that there was a big seasonal swing in employment here. For this category, think of online sales driving demand for package shipments. This is a secular trend reflecting a shift in the way Americans shop, but may or may not indicate a cyclical resurgence in economic activity. Basically, a quarter of jobs created last month were in parcel delivery services.
  • Wholesale trade, 11,600 new jobs

So, these jobs, which often tend to be low paying, accounted for 114,000 of those 200,000 jobs created.  Many of these jobs may have been added with the expectations of a strong holiday shopping season leading into increased consumer demand.  How vulnerable are these jobs to retailers' (and by extension, wholesalers' and transports') expectations not being met in coming months?  Conversely, can we see this as a positive leading indicator that shows that companies are expecting higher sales in coming months?  If so, even though these are low-paying jobs and might reflect some seasonal distortions, it may portend higher growth in the future if forecasts pan out.

Healthcare, as usual, added jobs, to the tune of 28,900 jobs in December.  This tends to reflect the ongoing demographic shifts of an aging population, rather than economic activity. 

The remaining sectors didn't add much individually. Construction added 17,000 jobs, which merely offset the jobs that were lost in that sector in the prior month.  In December, manufacturing employment expanded by 23,000, following four months of little change. This is a good sign and corresponds to the decent ISM manufacturing report we received recently, which showed a bump up in activity in that sector.  Manufacturing may be a leading indicator, perhaps as companies add to inventories in expectations of higher sales.  Mining employment rose by 7,000 over the month. Over the year, mining added 89,000 jobs.

Growth in higher-paying, white-collar jobs didn't materialize. Finance added only 2,000 jobs. Professional and business service payrolls grew by only 12,000 and information added a scant 6,000 jobs.  Governments of all levels shed 12,000 workers.  Positions in these sectors are the staple of the middle class as well as those more well off.  And the lack of employment growth here isn't particularly encouraging.

We should hardly be surprised that growth in low-wage jobs and not in higher-wage jobs depressed average hourly earnings.  For all employees, earnings grew by just 0.2% and that is before any adjustment for inflation. And for those who aren't managers or higher-level employees, wages were flat on the month. That's a big zero in hourly wage gains for production and non-supervisory personnel without even factoring in any higher prices. Since hours worked for both groups ticked up by 0.1 hours, weekly paychecks did rise a bit. Following the BLS' release of the consumer price index, the BLS will publish the real earnings report, which will provide an inflation adjustment to these wage figures, and I'll report on that in a Columnist Conversation post.

Turning now to the separate household survey, other data in today's report showed some encouraging signs. The number of those unemployed for six months or longer fell, which is a good sign, as did the number of discouraged workers and those working part time but who would like a full time job. As a result, the broad U-6 unemployment measure fell to 15.2% from 15.6%.  This measure, which includes those people who are underemployed and those who have given up looking for work (but who would like a job) and are not counted as officially unemployed, is probably the best measure of the true unemployment situation. And the big drop in this measure is very good news, though the rate is still very high.

Other data were mixed. Those not in the labor force grew by 194,000. These adults apparently do not believe there are jobs available for them, but when market conditions improve, they may enter, or reenter, the labor force, which may keep the official unemployment rate elevated, even as the economy adds jobs. The participation rate (the percentage of working age adults either working or looking for work) remained at 64%, which is down from 64.3% a year ago. 

Still, the number of officially unemployed dropped by 226,000, though not all of them found jobs, as the number of employed grew by 176,000. We may surmise that the difference in these two numbers reflected a transition to the category of those not in the labor force and represented part of the increase in that category, as discussed above.  Because the adult, working age population grew by 143,000, the total percentage of the population employed remained at 58.5%, an improvement from last year's 58.3% read, but still considerably less than the 62.9% level just prior to the recession, in November 2007.

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