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May 4, 2001

Do Employment Changes Trail or Lead the U.S. Economy?

In these uncertain economic times, it seems like we can select an optimistic or a pessimistic spin on almost any piece of information we receive. So it is with the April report on employment and unemployment in the U.S. economy. On its face, it might seem hard to find a silver lining in the news that the employment fell by 223,000 in April, the largest monthly decline in more than ten years. But does this news tell us where we are going, or where we already have been?

There's no escaping the fact that the labor market of April 2001 is a very changed place. The pattern of weak, but positive, net hiring that remained in place through February finally gave way in March, when job growth nationwide first went into the red. But March's job loss of 53,000 pales in comparison to the hemorrhaging of payrolls last month. 

The economic slowdown has hit both manufacturing and the technology sectors very hard, and the pattern of job declines makes that very clear. Factory employment declined for the eighth straight month in April, down by 104,000 jobs since March, and by 554,000 jobs since last June. In the last few months, it has been the formerly healthy electronic equipment and electronic components industries that have taken the biggest hits, reflecting in part the unwelcome rise in inventories earlier this year. 

Declines in manufacturing employment, while certainly troubling to production oriented states like Indiana, are not a new phenomenon. While the recent acceleration in job loss is acute, improvements in technology and out-sourcing of lower value-added jobs to other countries has contributed to a long term decline in manufacturing payrolls nationwide that is now 23 years running. 

But the abrupt turnabout in hiring in key sectors of the service-producing side of the economy is a strikingly new development. Particularly dramatic has been the decline in hiring by business services industries, led by sharp declines in help supply services firms. This high flying sector added an average of 625,000 new jobs every year in the late 1990's, but has lost 190,000 jobs in the first four months of 2001 alone. The clipping of demand for temp workers is sizable enough to account for most of the job losses that have occurred this year to date by itself. 

The current concern over these bleak employment figures, coupled with the rise in the U.S. unemployment rate to 4.5 percent, has to be its effect on job security and, ultimately, consumer spending. Job losses of this magnitude certainly put the economy in a hole that it must dig out of if we are to see overall growth in the second quarter. 

But it can also be said that the April job losses reflect more about what has already happened in the economy, and less about what will happen in the months ahead. Indeed, there is much evidence to suggest that payroll changes trail, rather than lead, other adjustments in the economy to different levels of demand. If that is so, and if the more bullish report on first quarter economic growth holds up to the scrutiny of revising statisticians, then the April job report might end up to be an economic pothole instead of a crevice.

Link to this commentary: https://commentaries.cberdata.org/476/do-employment-changes-trail-or-lead-the-u-s-economy

Tags: jobs and employment, unemployment and the labor market


About the Author

Pat Barkey none@example.com

Patrick Barkey is director of the University of Montana Bureau of Business and Economic Research. He has been involved with economic forecasting and health care policy research for over twenty-four years, both in the private and public sector. He served previously as Director of the Bureau of Business Research (now the Center for Business and Economic Research) at Ball State University, overseeing and participating in a wide variety of projects in labor market research and state and regional economic policy issues. He attended the University of Michigan, receiving a B.A. ('79) and Ph.D. ('86) in economics.

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