April Jobs Report: It’s All Good

by Tim Kane, Rea Hederman, and Alison Fraser
WebMemo #499

May 7, 2004
Heritage Foundation


On its face, the April jobs report released today by the Labor Department looks good, but the details look even better. Job growth was far above expectations in both the payroll and the household surveys, the rate of unemployment dropped to 5.6 percent, hourly earnings grew by 0.3 percent, and, best of all, the number of people suffering long-duration unemployment declined by hundreds of thousands. This is the first time in years that the labor markets show universally positive gains in every area—job growth, wages, and hours—in almost all sectors and across all demographics. The U.S. economy is moving from recovery into a self-sustaining expansion.



Payroll employment jumped by 288,000 workers in April, the second straight month of strong employment gains. The data also show that the number of working Americans is at an all-time high of 138.57 million, according to the household survey.



Key points

The unemployment rate inched down to 5.6 percent, essentially unchanged since January. This is below the average unemployment rates of the 1980s and 1990s.
Job growth was widespread across all sectors for the second month in a row.
Manufacturing posted jobs gains for the first time in 45 months, adding 21,000 workers in April and, with revised numbers, 9,000 in March.
The standout sector is in “Professional and business services” with 123,000 more jobs in April. This is the one sector to watch for the evolution of domestic outsourcing employment, where small companies provide services to big companies that were previously done internally, like security, accounting, and general consulting.
Construction employment continued its rise by adding 18,000 workers in April, or 213,000 since March 2003. This is the highest level of construction employment since March 2001. Commercial construction indicates and presages economic expansion for the workers who will eventually fill up the new buildings.
Critics argue that the unemployment rate would be much higher if we accounted for people who have left the job market due to discouragement over their job prospects. Yet alternative measures of unemployment turn out to reveal positive trends as well. The unemployment rate that includes discouraged workers declined by 0.4 percent over the last year to 5.9 percent. Another alternative unemployment rate, which includes all marginally attached persons, declined from 6.7 percent in March to 6.5 percent in April, and is also down 0.4 percent over the last year.



The final key point that merits special attention comes from Table A-9 of the report, which shows a completely unexpected reduction in the median duration of unemployment spells, from 10.3 weeks previously to 9.5 weeks this month. This strongly bolsters the case against extending unemployment insurance.



Myths of Weakness

The April report should be used to dispel the cynical myths of U.S. economic weakness.It shows, for example, that neither outsourcing nor productivity is a threat to job growth (quite the contrary), that the workforce is not discouraged, and that real wages are not declining. For once, the monthly report is positive across the board, confirming positive long-term trends.



Those with a vested interest in negativity will try to shift the debate away from jobs into a critique of the quality of new jobs, but there is no fact-based story along those lines.



The lesson for Congress and the States is that meddling with labor markets is unnecessary. For example, now is not the time to coerce employers to pay a higher minimum wage, because real wages are rising anyway and have been for years. Government coercion will only depress hiring. On the other hand, reform of outdated labor regulations is always in order. Moreover, if policymakers really want to strengthen the economy and promote job creation, they should permanently lower taxes, spend less, and then spend even less.

Tim Kane, Ph.D., is Research Fellow in Macroeconomics, and Rea Hederman is a Senior Policy Analyst, in the Center for Data Analysis at The Heritage Foundation. Alison Fraser is Director of the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.