The Job Market Isn't Really In The Dumps

The latest employment numbers show a surprising loss of 108,000 jobs over the past two months, the biggest drop since May, 1991. Is the job market about to slide into the pits again?

The answer depends on the outcome of a massive tug-of-war that's taking place in the labor market. On one side are the new economy's core industries, such as entertainment, education, computer services, communications, and consulting, which are adding workers at an astonishing clip (chart). On the other is the underbelly of the old economy, where job-shedding continues with fervor. Employers announced almost 60,000 job cuts in May. And the GOP's planned cuts in federal spending will increase the losses. The result: an economy precariously balanced between growth and recession.

CASTING CALLS. Despite the numbers, the latest news from the front lines of the labor market shows that the forces of job creation have an edge. For evidence, just look at the strong market headhunters are facing or the continued heavy recruiting on college campuses. If the economy were slowing, "the first place companies [would] turn off the spigot is new hires," says Patrick Scheetz, director of the Collegiate Employment Research Institute at Michigan State University.

Who's hiring? In recent months, entertainment has become the biggest job creator, accounting for 40% of all growth. Moviemakers, casinos, and interactive-game developers are hiring at a rate of 465,000 annually, twice as much as a year ago. The actual number may be far higher: Actors, directors, and screenwriters are often engaged as independent contractors for a particular project, which means they don't show up in the government's payroll data.

The consulting business also has been on a spree since Jan. 1. Consulting firms are growing at an astounding rate of 120,000 jobs annually, as Corporate America looks for help reengineering itself. The consulting arm of Ernst & Young will hire 1,200 this year, an increase of more than 30%. "We plan to continue at this rate for the next two to three years," says Bob McIlhattan, an E&Y partner. Another job generator: education. With elementary and high school enrollment rising by 1 million students a year, demand for new teachers and school support staff is more than offsetting any cutbacks in local government.

VROOM, VROOM. Even some manufacturers are adding workers, despite the slowing economy. Harley-Davidson Inc. is boosting its factory and engineering ranks faster than last year--driven equally by strong overseas and domestic demand for its motorcycles. And Step 2 Corp. in Streetsboro, Ohio, a maker of plastic toys, is just completing a new plant in Perrysville, Ohio. That will require 150 additional workers, says President Thomas G. Murdough Jr.

Still, jobs are disappearing almost as fast as they are being created--and that shows up in the numbers. Job loss isn't concentrated in the usual cyclical industries, which have only cautiously added new workers during the recovery. The downdraft is coming in financial services, government, and those parts of manufacturing that are still downsizing. This includes the planned elimination of almost 30,000 jobs by NASA over the next five years as well as the loss of up to 5,000 positions brought about by CNA Financial Corp.'s acquisition of insurer Continental Corp. Also, Boeing Co. is cutting 12,000 jobs this year alone.

Almost all nondurable manufacturing is also shrinking. In the chemical industry, employment has dwindled during the past year despite the strong economy and high profits. The trend should continue, says Kent A. Dolby, a managing partner at Andersen Consulting, as chemical companies try to improve their efficiency by "eliminating a lot of lower-value-added tasks."

So far, job creation in growing industries is managing to offset the losses. As the two parts of the economy pull in opposite directions, the message for job seekers is clear: Be optimistic, but hold on for a bumpy ride.

Before it's here, it's on the Bloomberg Terminal.