Recent US Labor Market Data

Economic and Labor Market Snapshot – June 2013

1. Macroeconomic Context

The US economy has continued to grow in 2013, albeit at a modest pace. Real gross domestic product (GDP) grew by 1.8% over the first quarter of 2013. Compared to 2.2% in 2012, 1.8% in 2011, and 2.4% in 2010, this growth rate is lower, yet consistent with the post-recession trend line.i

The increase in real GDP during Q1 of 2013 is largely a result of growing personal consumption and investments. For example, personal consumption expenditure (which accounts for approximately 70% of the US economy) rose by 2.6% during the period, compared to 1.8% in Q4 of 2012. Growth in GDP was partially offset by declines in government spending and exports. With the ongoing sequester, government consumption and investment fell by 8.7% over the quarter, while exports declined by 1.1%.ii

During the apex of the financial crisis and subsequent recession, the economy contracted by 0.3% in 2008 and 3.1% in 2009. The turnaround in growth began in the third quarter of 2009. Since then, the economy has witnessed continuous growth, at an average of 2.1% per quarter.iii

While the economy has returned to a positive trajectory since late-2009, the recession has had a severe and continued impact on the labor market. As is seen in figure 1, employment growth has been significantly slower than GDP growth since the beginning of the recovery. Total payroll employment, while recovering gradually, has still not recovered to pre-crisis levels.

The number of new jobs created remains insufficient to redeem the jobs lost during the recession and additional jobs needed to keep up with growth in the labor force. The ILO estimates that nine million jobs will have to be created by 2015 to restore the unemployment rate to 2007 levels.iv 
 
2. Labor Market Update
 
The economy is creating jobs, but too many Americans remain without work. In June 2013, almost 195,000 new jobs were added to the economy. On average, the economy has created 182,000 new jobs per month over the previous 12 months (which is 109% greater than the 2007 average of 93,000)1. Of these net jobs added, 58% (113,000 jobs) were occupied by women.

Due to the increasing size of the labor force, job creation has not been sufficient to reduce unemployment. The unemployment rate remained unchanged at 7.6% in June and has shown little movement, on net, since September 2012. The labor force participation rate currently stands at 63.5%, which represents a decline of 0.3% over the course of the year. The employment-population ratio, stands at 58.7% and has shown little net movement over the past year. v

Sources: BLS, Department of Labor; Bureau of Economic Analysis, Department of Commerce

While the private sector continues to generate employment, government, at both the federal and state level, is shedding jobs.
Over the past year, jobs in the federal government declined by 65,000. From May to June 2013, federal government employment declined by 5,000, while state government employment declined more sharply by 15,000 jobs. These public sector job losses were partly offset by gains in local government employment, which rose by 13,000 jobs in June 2013.

The vast majority of job creation is occurring within services industries, rather than in the production of goods. In fact, manufacturing lost 6,000 jobs during June (figure 2). Within the services sector, most of the job gains have been in leisure and hospitality, professional and business services, retail trade, health care, and financial activities. Educational services, on the other hand, lost 10,600 jobs in June.

While jobs have been lost in the manufacturing sector, the Purchasing Managers Index (PMI), reported by the Institute for Supply Management (ISM), rose by 1.9% from May to June. A tracking of the PMI indicates expansion in the manufacturing sector for the fifth time in the first six months of 2013. In keeping with the findings of the BLS, the ISM also finds that employment within manufacturing contracted in June 2013.


Source: BLS, Department of Labor, June 2013
Work hours have remained stable, while real wages declined in June, particularly for production workers. The average workweek for all employees stood at 34.5 hours and went unchanged over the month of June. Real average weekly earnings fell by 0.1% (22 cents) during June, while real average hourly earnings showed no change. From June 2012 to June 2013, real average hourly earnings rose by 0.4% (4 cents) and real average weekly earnings rose by 0.7% ($2.47).

For production and nonsupervisory employees, earnings fell more steeply. Real average hourly earnings and real average weekly earnings each fell by 0.3% (by 3 cents and 94 cents, respectively) during June. Though these workers have seen an average increase of .2% in real hourly and weekly earnings over the previous 12 months, this is considerably less than the 0.7% increase seen by the total workforce.

The unemployment rate conceals labor underutilization in the US economy. The unemployment rate remained constant at 7.6% from May to June. However, the official unemployment rate systematically underestimates the jobs deficit by excluding certain categories of workers. When accounting for discouraged workers (i.e. persons who have dropped out of the labor force because they believe no jobs are available to them), the unemployment rate jumps from 7.6% to 8.2% (figure 3). When accounting for other marginally attached workers (i.e. individuals not in the labor force, who wanted and were available for work, and had looked for a job sometime in the previous 12 months), the unemployment rate increases to 9.1%. Including discouraged, marginally attached, and involuntary part-time workers (i.e. individuals working part time because their hours had been cut back or they were unable to find a full-time job) nearly doubles the official unemployment rate to 14.3%.

The number of unemployed persons has declined from 12.7 million in June 2012 to 11.8 million in June of 2013. Much of this decline is due to a drop in long-term unemployment (i.e. those who have been unemployed for more than 27 consecutive weeks). Of total unemployment, the percentage of long-term unemployed decreased significantly in the past year - from 41.7% in June 2012 to 36.7% in June 2013 (figure 4). However, the share of long-term unemployment of total unemployment remains more than twice the June 2007 level of 16.4%.

Unemployment is a greater challenge within specific demographic groups, particularly ethnoracial minorities and young workers. Men are unemployed at a higher rate (7.8%) than women (7.3%). The unemployment rates for African-Americans (13.7%) and Hispanics (9.1%) also remain substantially higher than for whites (6.6%) and Asians (5%).

Youth unemployment remains a major concern in the United States. Almost a quarter of all teenagers (16-19 years) are unemployed. The unemployment rate for the 20-24 year category is comparatively lower, but at 13.2%, still remains substantially higher than the overall unemployment rate. Furthermore, of youth aged 16-24, 15% are neither in employment nor in education or training.vi

3. Overall jobs recovery prospects
 
As described above, the United States has witnessed moderate yet uneven job creation over the past three years since the Great Recession. Job growth is reflected in the employment-population ratio, which is the proportion of working adults among the total adult population. This ratio declined significantly during the recession, from 62.7 in December 2007 to 59.4 in June 2009 (figure 5). While it began to recover in December 2009, it has remained relatively constant since then – only increasing by 0.2 points from March 2010 to June 2013.

On the other hand, the unemployment rate declined by 2.3 percentage points over the same period. These competing trends indicate that a large share of the decline in the unemployment rate is due to a drop in labor force participation. Although unemployed persons have reentered the labor force at an average of 3.4 million per month since March 2010, there has been no significant net gain in the proportion of employed adults to the total population. The current employment-to-population ratio stands at 58.7 – far below pre-recession levels.


Source: BLS, Department of Labor


1
Net jobs added in April 2013 was revised upward from 149,000 to 199,000, and the change for May was revised from 175,000 to 195,000. With these revisions, employment gains in April and May combined were 70,000 higher than previously reported by the BLS.
2The PMI is an indicator of economic activity within the manufacturing sector. It is compiled through a monthly survey of private sector firms in the United States.
i"News Release: Gross Domestic Product." U.S. Bureau of Economic Analysis, US Department of Commerce. N.p., 26 June 2013. Web. 11 July 2013.
iiibid
iiiBureau of Economic Analysis, US Department of Commerce
ivILO calculations based on The Conference Board Total Economy Database, January 2013, and BLS data on average hourly earnings of all private employees from the Current Employment Statistics survey.
v"Employment Situation Summary." U.S. Bureau of Labor Statistics. U.S. Bureau of Labor Statistics, 5 July 2013. Web. 11 July 2013.
vi“Short-term Labour Market Outlook and Key Challenges in G20 Countries.” ILO and OECD, 18-19 July 2013.