Friday, January 9, 2009

Economy Loses 524,000 Jobs in December, Unemployment Rate Hits 7.2 Percent

Economy Loses 524,000 Jobs in December, Unemployment Rate Hits 7.2 Percent

By Dean Baker

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Hours worked have fallen at a 9.8 percent annual rate since September.

The December employment report showed the economy losing 524,000 jobs in December. It also showed sharp upward revisions to job losses in the prior two months, bringing job loss over the last three months to 1,531,000. This is the highest 3-month total since the months immediately following the end of World War II, although the job losses in the 1958 and 1974-75 recessions were larger relative to the size of the workforce.

The job loss was spread widely across sectors, but manufacturing and construction continue to be hit hardest. Manufacturing lost 149,000 jobs in December, bringing its loss over the last three months to 376,000. All manufacturing industries are losing jobs, but the largest job losses over the last three months were in fabricated metal products (63,600) and the auto industry (49,000). These declines are equal to 4.2 percent and 5.8 percent of total employment in these sectors, respectively. Over the year, total manufacturing employment fell by 9.6 percent.

Construction lost 101,000 jobs in December. The rate of job loss in non-residential construction continues to accelerate, with the sector shedding 34,300 jobs. Since peaking in August, the number of jobs in the sector has fallen by 124,000 or 3.7 percent.

Retail lost 66,600 jobs in December, bringing job loss in the sector to 309,000 since August or 2.0 percent of total employment. Employment services was also a big job loser, shedding 80,600 jobs. Over the last year, employment in the sector has fallen by 579,400 or 16.2 percent.

With the length of the average workweek getting shorter, the decline in hours worked has been even more rapid than the drop in employment. From September to December, the index of hours worked for production workers fell at a 9.4 percent annual rate. This rate of decline in hours would be equivalent to losing 12.8 million jobs over the course of a year, if the length of the workweek was constant.

The household survey shows an equally bleak picture. The unemployment rate jumped from a revised 6.8 percent to 7.2 percent in December. The employment to population ratio fell by 0.4 percentage points to 61.0 percent, 1.7 percentage points below the year ago level.

The unemployment rates for blacks and Hispanics both rose by 0.6 percentage points in December to 11.9 percent and 9.2 percent, respectively. The unemployment rates for both groups are up 3.0 percentage points from their year ago levels.

This recession seems to be more egalitarian than others; the unemployment rate for college-educated workers jumped 0.5 percentage points to 3.7 percent. While the unemployment rate for college-educated workers is still far lower than for less educated workers, it is more than twice its pre-recession level. This means that the risk of being unemployed has increased proportionately more for college-educated workers than for less-educated workers.

Remarkably, employment among older workers is continuing to increase even through this downturn. Employment among workers over age 55 rose by 233,000 since September. On the other side, employment for workers aged 35-44 fell by 559,000 or 1.7 percent, while employment for workers aged 25-34 fell by 488,000 or 1.6 percent.

Other measures in the household survey also show weakness. The percentage of long-term unemployed increased by 1.9 percentage points to 23.2 percent. The number of people involuntarily employed part-time jumped by 723,000. The U-6 measure of labor market slack jumped to 13.5 percent, the highest reading since the index was created in 1994.

The only piece of somewhat good news in this report is that nominal wages are still rising at healthy pace, increasing at a 3.4 percent annual rate over the last quarter. With the CPI showing flat or falling prices, this translates into a rapid rate of real wage growth for workers fortunate enough to keep their jobs.

The December employment report adds urgency to the passage of a large stimulus package. It shows an economy that is rapidly shedding jobs, with hours worked declining at an even more rapid pace. Health care is the only notable sector that is still adding jobs, and even this growth could be reversed in the months ahead.

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