Wednesday, June 30, 2004

It's the Wages, Stupid: Low Wage Industries Dominant

Chiming in for its two cents is a study conducted at the request of USA-Today about the distribution of new job growth in the economy. Unsurprisingly the jobs created are generally in low wage industries, rather than the high wage information technology or "creative" jobs that the Free Trader ideologues have been promising us.

Jobs in lower-wage industries and regions are growing at a faster pace than higher-wage jobs, suggesting job growth is less potent for the economy because the majority of new work isn't accompanied by fat paychecks.

Lower-wage jobs have risen more than 1.5% since U.S. employers started adding to their payrolls in September. Higher-wage jobs have also been created, but at a slower rate. Jobs in that category have increased a little more than 1% in the nine months through May, the period of most recent data.

Nearly 14% of the jobs added have been temporary workers, who typically are paid lower wages. Restaurant workers, who also usually are paid lower wages, have been added, too. Higher-paid computer jobs have been added at a snail's pace...

USA TODAY asked two economic consulting firms, and Global Insight, to study the recent job creation based on both industry data and geography.

If you're interested you can compare the growth of a major city near you to the national trend, or you can view the exact breakdown by industry in order to see the hot (and not) job growth sectors using the nifty charts that USA-Today has provided. One of my readers asked what areas they should guide their kids toward in order to obtain a decent standard of living. While I'll have more to say on that subject later, perusing the industry breakdown chart is a good place for him to begin.

For those optimists who still maintain that a growing economy, despite all burdens otherwise, will pull us into an eventual broader job growth pattern let me refer you to the report indicating that business growth is down since May as also reported by USA-Today.
The pace of expansion in business activity in the Midwest slowed sharply and unexpectedly in June, hit by weakness in the automobile sector, a report showed Wednesday.

The National Association of Purchasing Management-Chicago business barometer slid to 56.4 from 68.0 in May, and was at its lowest ebb since October. Economists had forecast the index at 65.0. A reading above 50 indicates expansion.

Patrick Fearon, economist at AG Edwards & Sons in St. Louis, said the report would give the Federal Reserve more breathing room for "measured" tightening of monetary policy.

"If this is suggesting a bit of moderation in the economic growth rate, then it should allow the Fed to raise interest rates at a modest pace going forward," Fearon said. "One positive here is that growth in employment remained at almost the same pace as May."

The employment component slipped to 53.6 from 54.8, but still strung together a rare three-month streak of expansion. The Chicago-area jobs index has been above 50 only seven times in about five years.

The momentum of the economy is clearly negative at this point. There have been multiple indications of this and the fact that Greenspan is going to tighten, gradual or not, indicates that the gravy train of economic stimulus is going around for one last round of drinks before the bar closes. This is not economic 'happy hour'. Given that, the growth we've seen in jobs will probably reverse appreciably by the beginning of the fall - say middle of September. How bad it becomes depends on whether there is a shock to the financial markets from some sort of systemic unraveling. If there is, the main street economy could easily be back in recession territory for 2005.


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