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Job growth in September indicates weak economy
Job growth was a weak 96,000 in September, some 50,000 short of the number of jobs needed to absorb the increase in working-age population and too small to actually lower unemployment (unless the labor force shrinks again, as it has the last two months). September's tepid job growth matches the average job growth of 103,000 over the June to August 2004 period and is far less than the 295,000 per month job spurt in March, April, and May. As discussed in the next section, current job growth is substandard by a reasonable set of benchmarks and far slower than what the Bush Administration said would follow as a result of its 2003 tax cuts. (See comments on forthcoming employment revisions below.)

Benchmarks for employment creation
To properly judge economic performance such as jobs, inflation, or gross domestic product, we must first establish appropriate yardsticks and benchmarks. Simply achieving positive job growth is not enough to ensure a strong, vibrant economy. Like GDP growth, it is the rate of growth that matters.

So how much job growth is needed to get "high marks"? Certainly one minimal benchmark is that jobs should grow as fast as the working-age population, a rate that would normally keep unemployment from rising. With the working-age population growing around 1.2% each year, the economy needs to produce between 135,000 and 150,000 jobs each month to hit this minimal benchmark. 1

A second benchmark for evaluating job growth performance would be the number of jobs needed to steadily reduce the current prevailing unemployment and underemployment. Reducing labor slack is necessary to reverse the family income declines of the last few years and to generate wage growth that outpaces inflation. A new studyAdobe Acrobat/PDF by the Cleveland Federal Reserve Board highlights the decline in the employment-to-population ratio as a useful indicator of the growth in labor slack. Given the employment-to-population ratio in September 2004 (62.3%), restoring this ratio to its 2001 pre-recession level (64.3%) would require payroll job growth of 275,000 to 290,000 per month.2

A third benchmark for judging the rate of job growth would be the employment growth projected by the President's Council of Economic Advisers (CEA) in their annual report issued in February 2004, which projected 300,000 new jobs added per month. The chair of the CEA, Greg Mankiw, referred to this projection as being "about average for a recovery."Adobe Acrobat/PDF   This benchmark, used monthly by, is the number of jobs (306,000 per month) that the Bush Administration projected would be created from June 2003 to December 2004 if its proposed tax cuts were legislated in 2003. The CEA projections may seem high relative to the actual performance of the last 42 months, but they reflect the normal pace of job creation in an average labor market recovery.

Benchmarks for employment growth

Tax cuts are not working to generate jobs
The Bush Administration called the tax cut package, which took effect in July 2003, its "Jobs and Growth Plan." The president's economics staff, the Council of Economic Advisers (CEA, see background documents), projected that the plan would result in the creation of 5.5 million jobs by the end of 2004—306,000 new jobs each month starting in July 2003. The CEA projected that the economy would generate 228,000 jobs a month without a tax cut and 306,000 jobs a month with the tax cut. Thus, it projected that 4,590,000 jobs would be created over the last 15 months. In reality, since the tax cuts took effect there are 2,882,000 fewer jobs than the administration projected would be created by enactment of its tax cuts. The September job growth of 96,000 fell 210,000 jobs short of the administration's projection. As can be seen in the chart below, job creation failed to meet the administration's projections in 13 of the past 15 months.

Difference between actual and projected monthly job growth

Weakest job recovery since the 1930s
Since the recession began 42 months ago in March 2001, 940,000 jobs have disappeared from the U.S. economy, representing a 0.7% contraction. To put this performance in historical perspective, the Bureau of Labor Statistics began collecting monthly jobs data in 1939 (at the end of the Great Depression). In every previous episode of recession and job decline since 1939, the number of jobs had fully recovered to above the pre-recession peak within at least 31 months of the start of the recession (the average, excluding the 1991 recovery, has been 20 months to full recovery). In the three downturns since the early 1970s, the economy had not only recovered from any job loss but had also generated 4.3% more jobs. By this standard, the economy would have had a positive job gain of 5,750,000 by the 42nd month, or 6,691,000 more jobs than we have today.

Change in total employment, 42 months after the recession began

Private-sector jobs have fared worse than public-sector jobs. Jobs in the private sector have dropped by 1,638,000 since March 2001, representing a 1.5% contraction. However, having no job losses, or gains, is a very low standard by which to judge a recovery—with history as a guide, one would have hoped that the economy would have recovered months ago the jobs lost. If job growth had been at the pace of other post-war business cycles (a 5.2% growth by the 42nd month), then 6.8 million new jobs would have been created by now, 7.8 million more than we have today.

Change in private-sector employment, 42 months after the recession began

Forthcoming employment revisions
The BLS commissioner announced today that, based on preliminary analysis of first quarter unemployment insurance tax reports, payroll employment for March 2004 will be revised upward approximately 236,000. That is smaller than the average revision. It does not materially change the picture for job growth between March 2003 and March 2004. Revisions tend to go upward when job growth is improving and downward when job growth is slowing or negative. Given the weakness of job growth in the last four months, one cannot assume that the level of employment for September will ultimately be raised as much as 236,000.

1. The working age population has grown at an annual rate of 1.2% since the population adjustment in January but at an implicit rate of 1.3% since August 2003. Merely to keep up with population, employment must grow by 135,000 to 150,000 a month.

2. If the labor market were improving at the average of past recoveries, as reflected in a recovery in the employment-to-population rate, then payroll employment would need to rise by 140,000 more than needed to keep up with population growth. This indicates the need to generate 275,000 to 290,000 jobs per month. The employment-to-population ratio rose about 0.062% a month (or 0.74% per year) in past labor market recoveries. We currently have a working-age population of 224 million.

Payroll jobs are currently 94.1% of household employment. We make no adjustment for this because, at this stage in previous recoveries, monthly payroll job gains exceeded household survey employment gains.

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