Higher-Pay Jobs Make a Comeback
Signs Point to Turnaround
For Professional, Service
And Manufacturing Work
By JON E. HILSENRATH and KEMBA DUNHAM
Staff Reporters of THE WALL STREET JOURNAL
May 10, 2004; Page A2
As the U.S. economy grows stronger, the labor market is beginning to create better-paying jobs.
For months, some economists have worried that the labor market appeared to be producing mainly jobs in low-paying industries while jobs in high-wage industries, especially professional services, were starting to migrate abroad. Now there are some early, though still tentative, signs that as the job market recovers, the mix of employment is tilting toward more better-quality work.
The Labor Department reported Friday that nonfarm payroll employment rose 288,000 in April and a revised 337,000 in March, bringing the total number of jobs created in the first four months of 2004 to 867,000, a sharp turnaround from the year-earlier period when the economy was losing jobs. The unemployment rate last month dropped to 5.6% from 5.7%.
ECONOMIC SNAPSHOT
Following a slew of largely upbeat data, the Fed will weigh the whole economic picture when it decides whether to raise rates at its June meeting. See a snapshot of indicators and decide for yourself.
The strong employment gains suggest the U.S. economy has entered a new self-sustaining phase of expansion. That's good news for President Bush's re-election prospects, and also means the Federal Reserve probably will start to raise interest rates in the next few months. The central bank had been willing to keep its short-term interest-rate target at 1% as long as inflation scraped close to zero and the recovery in jobs remained tentative. But inflation has drifted above 1% recently and the March and April jobs reports, combined with upward revisions to prior months, will likely convince the central bank that the jobs recovery is now on a sustainable path.(See related article.)
If the May employment report, due in early June, is also reasonably strong, the odds are high that the Fed will start to boost rates at its June 29-30 meeting. If it's weak, and inflation eases, the Fed will likely put off its first increase to August or later. Goldman Sachs, one of the last major Wall Street forecasters to maintain the Fed wouldn't move until next year, threw in the towel Friday, calling that view "untenable." It predicted the Fed would start to raise rates in June and lift its key rate to 2% by year's end.
Maury Harris, chief U.S. economist at UBS AG, said perhaps the most significant, yet widely overlooked, news in Friday's report was in the mix of jobs. Employment in professional and business services, from management consultants to engineers, rose by 123,000 following a gain of 54,000 in March. For the first four months, the category is up 214,000, or 1.3%.
Durable-goods manufacturers, led by makers of fabricated metals and machinery, added 20,000 jobs in April and 41,000 in the first four months of the year, the largest four-month increase since the summer of 2000. Employment in this category rose 41,000, or 0.5%, in the first four months.
Meanwhile, the fastest-growing sector in the economy in terms of job creation was Internet content producing, which increased employment 6.9%, or 2,000 jobs, in December to April.
"There has been a major turnaround in high-wage job growth," says Mr. Harris. UBS economists broke down Friday's report by looking at job growth in industries with above-average pay and comparing it with job growth in industries with below-average pay. They found that low-paying industries began picking up employment last year and had been outpacing high-paying industries. But in the past few months, the gap has narrowed. In December, employment in high-wage industries was down 0.4% from a year earlier. Now it is up 0.6% from a year earlier, Mr. Harris says.
The pickup in better-paying jobs could help explain why wage growth showed signs of accelerating in March and April after slowing in early 2004 even as the job market started to improve. Average hourly earnings were up 2.2% in April from a year earlier, compared with a 1.8% increase in March and a 1.6% increase in February. While the April increase was barely keeping pace with rising inflation, it did mark a turnaround in earnings power after a steady slowdown for two straight years.
To be sure, the recent gains in better-paying industries could easily be reversed. The manufacturing sector, in particular, has seen short-term employment increases in the past that didn't reverse a longer-term decline in jobs. And while the gains in better-paying jobs are significant, jobs in retailing and restaurants, which tend to produce a large number of jobs on the lower end of the pay scale, still stand out on a list of the fastest-growing industries. In fact, those two industries alone added more than 250,000 jobs since December.
The employment-to-population ratio, a measure of the percentage of the population that is working, rose only slightly in April to 62.2% from 62.1% in March.
