June 4, 2004

June 4, 2004 | WebMemo on Economy

Jobs Momentum In May

Employment in America continues to expand strongly and steadily, according to the May Employment Situation report released by the Labor Department this morning. Payroll employment rose by 248,000 in May, and the unemployment rate held steady at the low rate of 5.6 percent. This follows increases in payroll jobs of 346,000 in March and 353,000 in April.


In sum, the economy has added 947,000 payroll jobs over the last three months, its strongest 3-month showing since May 2000. This caps nine straight months of payroll gains, which are slowly catching up to the household survey's earlier signs of a surge (see Chart 1).


Improvements are again broad-based, with no major sectors showing any weakness. Especially notable have been gains in manufacturing and construction. Manufacturers added 32,000 jobs in May, up 91,000 since January. And for the first time in several months, the manufacturing workweek lengthened in May. The construction sector added 37,000 jobs, capping several months of strong growth.


Service industries added 176,000 workers, with gains across all subsectors except government, which shed 27,000 workers. Once again, business services led the pack, which is to be expected in a growing, flexible economy.


Wages continued their upward trend in May, tacking on an additional 5 cents per hour. For the year, hourly earnings are up 2.2 percent so far. Total private average weekly earnings are up $9.51 for the year to date.


Implications for Congress

The jobs momentum apparent today provides a new context for domestic policy debates on Capitol Hill. Legislation to raise the minimum wage or extend unemployment insurance has no justification in this market. But the expansion in jobs and wages also reveals the poor logic of arguments claiming that Americans will suffer without government intervention. To the contrary, this expansion happened thanks to a growing private sector freed of government disincentives to invest.


The 2003 tax cut led this expansion, especially in investment-driven industries that benefited from lower capital gains tax rates and accelerated depreciation of their investments. Unemployment peaked in June of 2003, but as companies and workers took advantage of lower taxes, employment slowly increased and the unemployment rate declined.


Behind the Numbers

As the myth of a jobless recovery is replaced by the reality of a jobs expansion, naysayers will point to the status of Americans who are "long-term unemployed." For example, this month the median duration of unemployment rose by half a week, even though it has declined over the longer term and is now only 10 weeks for the median unemployed person-down from 10.7 weeks in January.


The absolute number of workers unemployed for longer than 15 weeks has declined sharply since the start of the year, by a total of 300,000 people. Of this number, 200,000 were unemployed for 15-26 weeks and 100,000 for 27 weeks or more. In contrast, workers unemployed for less than 5 weeks are becoming a larger share of the total number of unemployed, rising from 31.2 percent in January to 33.2 in May.


This expansion continues to reward education, although there are signs that unskilled workers have better job prospects than before. Workers with only a high school degree have seen the unemployment rate decline from 5.5 to 5.0 percent over the last year. Workers with an associate degree or some college education have seen a sharp drop in unemployment from 4.9 percent to 4.0 percent over the last year. Only workers without a high school degree experience an unemployment rate higher than the national average, at 8.8 percent, but their prospects have still improved compared to a year ago.



The economy has added more than 1 million jobs so far this year and most indicators point towards continued growth. Output is booming, the manufacturing outlook is positive, business confidence is high, and productivity continues to set records. Even such favorites among economic pessimists like data on long-term unemployment, manufacturing employment, and worker discouragement are showing marked improvement.


We anticipate continued jobs growth through the year, unless, of course, Congress meddles with a good thing. Employment will expand so long as no jobs-killer bill passes, such as a mandated increase the minimum wage. The priority now is for Congress to recognize what it did right when it passed the 2003 tax bill-accelerating rate cuts and slashing taxes on investment-and make those reforms permanent ahead of everything else.


Bill Beach is Director of the Center for Data Analysis, Tim Kane is Resarch Fellow, and Rea Hederman is Senior Policy Analyst, at The Heritage Foundation.

About the Author

William W. Beach Director, Center for Data Analysis and Lazof Family Fellow
Center for Data Analysis

Tim Kane, Ph.D. Visiting Fellow
Center for Trade and Economics (CTE)

Rea S. Hederman, Jr. Director, Center for Data Analysis and Lazof Family Fellow
Center for Data Analysis

Related Issues: Economy