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Employment and unemployment in the first half of 1988.

Unemployment declined to a 14-year low by midyear; job growth slowed in the second quarter, and was not as widespread as in the previous year

During the first half of 1988, job growth began to moderate from the rapid pace of 1987, but the civilian unemployment rate, which averaged 5.5 percent in the second quarter, was down considerably from 5.9 percent at the end of last year. In this article, these developments are viewed in the context of the wider economic background and also are compared to conditions at a similar period in recent business cycle history.

The economic context

As 1987 drew to an end, there were signs that the 5year expansion in employment may have been in some danger of coming to a close. The collapse of stock prices in October 1987 cast a shadow over expectations for short-term economic developments as the new year began. Paced by the decline in stock prices, the Commerce Department's index of leading indicators fell in the last quarter of 1987 -its first quarterly decline in more than 3 years. The slippage stopped in the first quarter of the new year, but the leading index was still lower than it was two quarters earlier.

There was a rapid runup in inventories in the last quarter of 1987, and, as firms began to correct that imbalance, inventory investment declined in early 1988. The Commerce Department's index of coincident indicators, a measure of current economic activity, which had posted strong increases in the last half of 1987, slowed somewhat in the first quarter.

In contrast to these moderating factors, statistics on foreign trade showed that the export push that had fueled rapid gains in manufacturing employment in the last half of 1987 was continuing, and estimates of consumer spending rebounded quickly after dropping at the end of 1987. At the same time, however, imports were also rising, so that there was only slow progress toward a more balanced merchandise trade account.

Individual industries, of course, faced differing economic environments. Manufacturers, especially those with interests in international markets, were helped by a decline in the exchange rate for the dollar. Partly as a result of the rise in exports that the falling dollar encouraged, industrial production and capacity utilization figures remained fairly upbeat throughout the first half of 1988.

As consumer spending paused in the last quarter of 1987, the distribution system, especially at the wholesale level, saw inventory growing faster than sales, and the inventory-to-sales ratio for wholesalers rising sharply. The construction industry faced declining sales as interest rates rose both late in 1987 and in the second quarter of 1988. As a result, housing starts dipped and residential construction spending flattened.

Employment gains slower in second quarter None of the worst scenarios for the Labor market that had bee generated by the financial turbulence of late 1987 came true in the first half of 1988. Unemployment continued to recede, and there was only a slight slowdownin payroll job growth from the rapid rate of 1987. Gains in nonfarm payroll employment were still strong in early 1988, totaling nearly 1 million jobs in the first quarter, before slowing to an 875,000 increase in the second. (See table 1.) Goods-producing employment continued to expand, although at a slower pace than in late 1987, increasing by 375,000 in the first half of 1988. While construction gains were concentrated in the February-, April period, they still totaled 170,000. There was, however, no slowdown in factory employment growth; 205,000 jobs were gained in the first half, about the same growth rate as in the previous year. Much of the rise was confined to a few of the industries that have higher than average ratios of exports to shipments, especially machinery and chemicals. The following tabulation shows the growth rate and percent distribution of job gains of selected industries with high ratios of exports to shipments:

A measure of the extent to which employment gains are distributed across industries is the index of diffusion -the percentage of 185 private nonagricultural industries in which employment increased over a specified time (with half of nonchanging components counted as rising). During periods of economic growth and job gains, a rise in the index indicates a more broadly based expansion in employment, while a lower figure would indicate a more concentrated pattern of growth.

The monthly index of diffusion averaged 62 percent in the first half of 1988, down 5 percentage points from 67 percent during the fourth quarter of 1987. Thus, job growth was not as widespread during the first half of 1988 as it had been the previous year. One weakness of the diffusion index is its overrepresentation of manufacturing industries at a time when service-sector jobs are dominating the totals. Indeed, during the first half of 1988, the service sector grew by 1.5 million, more than 80 percent of net job gains. However, its rate of growth also started to fall during the second quarter. While growth in wholesale trade and health services continued to be relatively strong, gains in retail trade and business services, two mainstays of the current expansion, slowed in the spring. And there were virtually no gains in the finance industry, reflecting a year-old retrenchment in banking and, by the second quarter, cutbacks among securities brokers.

Overall civilian employment, as measured by the Current Population Survey (cps), rose 1.2 percent during the first half of 1988. (See table 2.) While this was below the pace of 1987, it was about equal to the growth rates of 1986 and the last half of 1985. While month-to-month movements were quite erratic, growth still averaged out to a 485,000 quarterly rise. As in the payroll survey, most of the increase occurred in the first quarter. The civilian employment-to-population ratio also rose fitfully during the first half, but edged up to 62.2 percent by midyear, a record level.

Declines in joblessness

The civilian unemployment rate averaged 5.5 percent in the second quarter of 1988. The rate had been on a downward trend since the previous fall and was lower than at any time since the second quarter of 1974. During the first half, declines in unemployment were most evident among whites and teenagers. In contrast, the unemployment rate for black workers did not improve at a 11.

The number of unemployed persons, which had fallen in absolute terms in every quarter since the second quarter of 1986, stood at 6.6 million at midyear, down 465,000 from late 1987. This was the lowest absolute level of unemployment since the fourth quarter of 1979. Despite continuing growth in the Labor force, both the level and rate of unemployment had fallen below where they had been at the start of the recessions of the early 1980's.

The number of long-term unemployed -those jobless 27 weeks or more-fell by about 120,000 during the first half of 1988, to 810,000. Also, by the second quarter, the median duration of ongoing unemployment spells had fallen to 5.8weeks, compared with 6.1 weeks at the end of the prior year. Workers who had lost their jobs accounted for virtually the same share of the unemployed, 46 percent, while those who had voluntarily left their jobs to search for new ones increased from 13 percent to 14 percent. A rise in the proportion of job leavers is often taken as a sign of workers' confidence in Labor market conditions.

Other measures of distress

Not all indicators of Labor market difficulty improved during the first half of the year. After declining throughout the expansion, the number of discouraged workers persons not in the Labor force who report that they would like a job but are not actively seeking one because they think it would be impossible to find one -rose by 100,000 to about 1 million in the first quarter before returning to its late-1987 level of 910,000.

The number of persons working part time even though they would prefer a full-time job-those on part-time schedules for economic reasons-continued to fluctuate within the 5.2- to 5.8-million range of the previous 4 years. While a dip to 4.8 million in May left the second quarter average below that of earlier quarters, the return to 5.3 million in June indicates that the May estimate was probably an outlier. Still, with the rapid growth of total employment, persons working part time for economic reasons made up a smaller proportion of American workers.

Comparisons to an earlier era

There was considerable comment when the monthly unemployment rate reached 5.4 percent in April 1988, the lowest rate since June 1974. However, a comparison of current Labor conditions with the middle of 1974 is probably not valid because, in 1974, the economy was sliding into the second most severe recession since cpsbased unemployment statistics have been regularly published. A more useful comparison might be with the second quarter of 1979. At that point, the business cycle was well into a prolonged expansion, and the unemployment rate was 5.7 percent-conditions not much different from those in the second quarter of this year.

One of the most striking changes since mid-1979 has occurred in the relationship of the unemployment rates of men and women. In 1988, the jobless rate for adult men was 4.7 percent, well above the 4.0-percent rate posted in mid-1979. In comparison, the rate for women, at 4.9 percent, was almost a full percentage point lower in 1988 than in 1979. In effect, the unemployment rates of men and women have converged significantly since mid-1979. Among the reasons for women's relative improvement are their greater employment concentration in many highgrowth service-sector industries, their increased tendency to work full time and year round, the growth and pattern of their Labor force participation, and their dramatic improvements in educational attainment.

While there has been a significant shift in the relative incidence of joblessness between the sexes since 1979, there has been little progress toward more even unemployment rates across racial and ethnic divisions. The ratio of black-to-white unemployment rates was 2.6-to-I in mid-1988, the same ratio as in the second quarter of 1979. Unemployment among Hispanic workers averaged 9.1 percent in the second quarter of 1988, or 1.7 times the overall rate. This actually reflects some deterioration since 1979, when their jobless rate was 8.2 percent, or 1.4 times the national average.

On the employment side, the last 9 years have seen a continuation of the secular trend toward service-producing industries, while there has actually been a decline in goods-producing employment. Mining employment has fallen by 210,000, and manufacturing employment has gone down 1.6 million. Although the other goodsproducing industry, construction, grew by about 800,000, it still left employment for the entire sector roughly a million less than it had been. Partly as a result of this decline, but more fundamentally as a function of its own new net gain of more than 17 million jobs, the serviceproducing share in payroll employment grew by about 5 percentage points to a bit over 75 percent.

THE FIRST HALF OF 1988 saw more moderate employment growth, following robust gains in 1987. However, the unemployment rate continued to fall, reaching a point clearly below that prevailing at the start of the recessions of the 1980's. Some problems persisted, such as relatively high numbers of involuntary part-time workers and discouraged workers and the high jobless rates for minority workers. But it is important to note that this was the first time since the prolonged expansion of the 1960's that the jobless rate fell below the lowest point reached in the previous business cycle.
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Article Details
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Author:Devens, Richard M., Jr.
Publication:Monthly Labor Review
Date:Aug 1, 1988
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