Monday, May 09, 2005

The big US employment news of last week was the robust gain in jobs in April.
Hiring around the country picked up briskly in April, with employers boosting payrolls by 274,000 and raising hopes of better days ahead for jobseekers and the economy as a whole. The unemployment rate held steady at 5.2 percent.

The latest snapshot of the nation's employment climate, released by the Labor Department on Friday, eased fears about the economy getting stuck in the soggy spot it hit in March.

April's payroll growth marked an improvement from the 146,000 new jobs created in March. Economists also were heartened to see that revised figures showed employers added 93,000 more jobs in February and March combined than the government previously estimated.

"The economy appears to be snapping back and the soft patch has probably evaporated," said Lynn Reaser, chief economist at Bank of America Capital Management. "Jobseekers can now look forward to a more receptive climate. We are seeing jobs open up over a wide swath of industries."
So, has the US economy finally turned the corner on employment � and by extension, wages? Not so fast.

The big job gains in April were distributed across the board � excepting manufacturing, which has been steadily losing production jobs all year and shedding total jobs for three of the last four months now. The gains were concentrated, however, in two sectors � construction and leisure/hospitality � which made up nearly 40% of the net total. Construction had its best month since March 2004 and its second best since March 2000, while leisure/hospitality saw its biggest monthly gain since January 2003.

The dominance of these two sectors means we need to take April�s job jump with a grain of salt. Construction is, of course, heavily influenced by interest rates, and continuing low real rates are fuel to the building fire. The entire good-producing sector generated 45,000 new jobs, with construction contributing 104% of the net total! If the US economy can export all that real estate, then the capital account surplus swells � and it�ll need to in order to balance the current account deficit which will only continue to erupt.

The story of leisure/hospitality is the story of booming American consumption. 42,000 of the 58,000 new jobs in this sector came in accommodations and food services, and since the sector�s most recent low in June 2002, employment in leisure and hospitality has expanded by 823,000, with 80% of the gain being in food services alone. Now, a job is better than no job, but the US economy isn�t going to sail ahead on the backs of caterers, wait staff and bartenders.

The leisure/hospitality sector, after all, is the lowest paid industry in the country. In March 2005 production workers made on average just $9.09/hr.. Wages in construction are much higher, of course � $19.27/hr. in March � but the real average wage for production workers in this sector is actually falling, down a remarkable 2.0% over the last year. No other industry has seen real wages fall as far.

Indeed 274,000 new jobs is good news for the US economy. Just not nearly as good as we might be led to believe.


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