South-Western College Publishing - Economics

 

 

U.S. Job Market Grows--But Slowly

Subject

U.S. Job Market

Topic

Employment, Unemployment, and Inflation

Key Words

Unemployment and Job Growth

News Story

The U.S. Labor Department’s latest employment report indicates modest but continuing improvement in the nation’s job market. The report also dampened concerns the Fed would heed inflationary pressures and increase interest rates more quickly in the months ahead.

April job creation was less than half the number of jobs created only a month earlier. March job creation, entered at 243,000 new jobs outside of the farming sector, doubled April’s recorded 110,000 such jobs.

The job numbers were disappointing to most analysts, but as long as jobs are being created, unemployment numbers will continue to improve as well. “You have a good recovery in the labor market, not spectacular, but enough to generate a very slow decline in unemployment,” said Lehman Brothers’ chief economist Ethan Harri. This month the unemployment rate fell to 5.2 percent from 5.4 percent the month before.

The Labor Department report indicates that workers have not gained enough bargaining power to push up wages; the weekly earnings numbers reflect this lack of influence. Weekly earnings increased by only .3 percent in March, not sufficient to keep up with inflation. Going back over the past year, consumer prices have increase by about 3 percent, while both hourly and weekly earnings have grown by 2.6 percent.

The Federal Reserve’s biggest source of inflation anxiety is rising labor costs, so this latest report eases those concerns. The Fed gained the attention of financial markets on March 22 when it warned that increasing inflationary pressures could result in the Fed increasing interest rates more rapidly in the coming months. This newest report will probably allow the Fed to continue its gradual pace of increasing interest rates at about a quarter of a percent at each FOMC meeting.

Questions

1.

The unemployment rate is currently reported at 5.2 percent. Use your textbook to identify and define three types of unemployment.  Which types of unemployment does this report capture?

2.

Explain how the unemployment rate is calculated.

3.

Discuss the connection between increasing labor costs and inflation.

Source

Edmund Andrews, “Growth in Job Market Slowed Considerably in March”, The New York Times Online, April 1, 2005.

Return to the Employment, Unemployment, and Inflation Index

©1998-2005  South-Western.  All Rights Reserved   webmaster  |  DISCLAIMER