On April 4, the Bureau of Labor Statistics released the March
employment report. American businesses shed 80,000 jobs in March
and 232,000 jobs in the first quarter of 2008. The unemployment
rate climbed above 5 percent for the first time since 2005. This is
further evidence that the American economy ground to a halt in the
first quarter of 2008.
March Employment Report
In March, private businesses reduced employment by 98,000 jobs,
but the government added 18,000 workers for a net job loss of
80,000. This is the fourth consecutive month that private employers
have reduced employment. As a result, the unemployment rate climbed
from 4.8 percent in February to 5.1 percent for March. This is the
highest unemployment rate since September 2005, after Hurricane
The sector-specific numbers for March yield greater detail:
- Despite a growing export sector, manufacturing continues to
shed jobs at a high rate-48,000 in one month-but a large portion of
this job loss is due to an automobile-industry strike.
- The construction sector lost 58,000 jobs and has now reduced
employment by 394,000 jobs since the peak of the housing market in
the fall of 2006.
- The downturn in the housing market spread to the financial
sector, which lost 5,000 jobs.
- Professional and business services reduced employment by
35,000, mostly because of a steep decline in employment and
temporary help services, which themselves lost 41,800 jobs.
- The only sectors to increase employment in March were leisure
and hospitality (18,000); government (18,000); and education and
health services (42,000), with most of the added jobs in health
There was an increase in the total private hours of work, the
first such increase in this calendar year. Manufacturing hours have
been increasing over the past several months, and overtime work
increased for the first time in the year as well. An increase in
hours worked may indicate that work is increasing for some areas of
the economy and that employment could increase in the future.
Long-Term Unemployed and Discouraged
The data show that long-term unemployment is not a major
problem. The number of workers unemployed for longer than 27 weeks
increased by only 75,000 from March 2007 through March 2008 and has
fallen over the past four months. The number of workers unemployed
for over 15 weeks is up 217,000 workers since March 2007. Though
the median duration of the length of unemployment has declined over
the past two months, this is due primarily to the increase in the
number of workers who have only recently become unemployed.
Workers who have given up looking for work are classified as
discouraged workers and are considered marginally attached to the
labor force. This month's report shows the number of discouraged
workers to be 401,000-only 5,000 higher than the previous month and
much lower than the number of discouraged workers in January. This
indicates that the number of long-term unemployed workers has not
fallen because these workers have given up looking for a job and
are too discouraged about job prospects.
Housing Stimulus Misguided
Congress should not react to the softening economy and the
pressure to "do something" by passing expensive but ineffective
stimulus measures that will do little to help the economy. Because
the government does not create wealth, but only transfers it,
Congress has limited power to stimulate the economy.
Senators from both parties recently announced a bipartisan
housing stimulus bill, the Foreclosure Prevention Act (S. 2626).
Whatever the merits of this legislation as housing policy, it will
do little to stimulate the economy. Any money the government spends
on one program comes from elsewhere in the economy. Legislation
directing money toward homeowners means less money in the hands of
those who bought the government bonds that financed that deficit
spending. Overall, the economy is no better off.
Further, this legislation, despite aiding some clearly
identifiable groups, will do little to solve the housing market's
fundamental problem. The housing market went through an asset
bubble, with prices rising far faster than fundamentals justified.
The Federal Reserve kept interest rates low for an extended period
of time, thus encouraging borrowers to take out larger loans. Banks
also relaxed their lending standards, issuing billions of dollars
of subprime mortgages to borrowers with checkered credit histories.
These factors caused the demand for housing-and thus the price of
homes-to soar 33 percent between the first quarter of 2003 and the
first quarter of 2006. With home prices rising sharply, many
borrowers also took out speculative loans in the hope of reselling
in a few years at a profit.
Now the housing market is readjusting to the fact that home
prices are not going to appreciate 10 percent a year indefinitely.
Home prices have fallen 14 percent in the past two years. The
housing market will not return to normal until after prices fully
readjust. In the interim, the market has temporarily seized up. Many
buyers are holding out for a better deal and fearful of purchasing
an asset that will decline still further in value, and many sellers
have not yet come to grips with the fact their homes are worth less
than they thought and do not want to sell at a loss. Once prices
have adjusted, the market will return to normal.
This correction will be painful for many homeowners, though it
will also make housing more affordable for many first-time home
buyers. Congress should not try to stop home prices from
readjusting downwards. Housing markets will not return to normal
operations until after this correction. Congress should not react
to this employment report by rushing to pass a housing stimulus
bill. Instead, Congress should pass housing legislation on the
basis of appropriate long-term policies, recognizing that any
legislation passed now will do little to stimulate the economy in
the short term.
Though this is not a good employment report, with an increase in
unemployment, by historical standards the current job market
remains strong. An unemployment rate of 5.1 percent is still lower
than the average unemployment rate for the 1970s, 1980s, and 1990s.
The unemployment rate for previous recessions peaked at much higher
level, even reaching double digits for severe economic
Congress and the President should not panic during this
downturn. Enacting policies that attempt to prop up a bubble can
only make things worse. Economic downturns are a call for action,
but that action must be based on economic principles that lead to
strong long-term economic growth. Policymakers should not
dramatically increase regulation that could limit future growth,
and they should not meddle in the housing market. Either action
will only prolong the downturn.
Rea S. Hederman,
Jr., is Senior Policy Analyst and Assistant Director, and James Sherk is Bradley
Fellow in Labor Policy, in the Center for Data Analysis at The
Heritage Foundation calculations based on data from Haver Analytics
/ U.S. National S&P Case-Shiller Home Price Index. Adjusted for
inflation using the CPI-U-RS.
Ibid. Adjusted for inflation, the Case-Shiller Home Price
Index fell 14.4 percent between the first quarter of 2006 and the
fourth quarter of 2007.