Payrolls surge but economic worries linger
economictimes.indiatimes.com REUTERS[ SATURDAY, FEBRUARY 08, 2003 11:46:07 PM ]
WASHINGTON: The U.S. economy added jobs at the fastest rate in more than two years in January and the jobless rate sank to a four-month low of 5.7 per cent, kindling hopes the recovery might be gathering strength.
But some analysts cautioned the strength in Friday's closely watched jobs report was exaggerated by quirks in retail hiring and the way in which the government smooths out the payrolls series to account for seasonal fluctuations.
Stocks failed to gain ground on the report, which was overshadowed in financial markets by a government alert about a possible terrorist threat and by a growing sense that a U.S. war with Iraq might be drawing near.
Payrolls outside the farm sector jumped by 143,000 -- more than double the 70,000 expected by economists and the biggest rise since November 2000, before the recession set in, the Labor Department said. Jobs fell 156,000 in December.
The unemployment rate hit its lowest level since September and was three tenths of a per centage point lower than December's 6 per cent.
"The surge in payrolls is clearly suggesting that we may be turning the corner of a very stagnant job market," said Anthony Chan, chief economist at Banc One Investment Advisors in Columbus, Ohio.
But Chan warned: "We should not forget that virtually 70 per cent of the rise in the payrolls was due to seasonal factor glitches associated with the retail sector."
The jobs data pushed bonds down initially, but they later staged a comeback as stocks faltered. The blue-chip Dow Jones Industrial average fell 65 points to 7,864. The tech-laden Nasdaq Composite Index fell 19 points to 1,282.
Retailers in the final months of 2002 anticipated that consumers would stay away from the shops, frightened off by weak economic prospects and uncertainties about a potential war with Iraq. So they hired fewer seasonal workers than they typically do in the holiday season.
But with fewer temporary workers on the payrolls, there were not as many layoffs in January as the Labor Department's seasonal adjustment process expected and that meant the latest month's hiring trends appeared very strong.
"There were some elements of exaggeration in the payroll numbers," said Henry Willmore, chief U.S. economist, Barclays Capital in New York.
Underscoring fears the economy might not be out of the woods, the a report from the Federal Reserve showed that consumers pulled back sharply on their accumulation of credit- card debt late last year.
The Fed said consumer debt fell by $4.0 billion in December, the largest drop since a $5.8 billion drop in December 1990, when the U.S. economy was in the throes of recession.
In per centage terms, consumer debt declined at a 2.75 per cent annual rate in December, the biggest monthly decline since a 3 per cent drop in April 1992.
The data surprised Wall Street analysts who expected consumer debt to rise in December.
With economic signals mixed, analysts did not shift their expectations about future Federal Reserve policy moves based on Friday's data. Most economists think the central bank will keep interest rates at four-decade lows of 1.25 per cent for now.
President Bush, pushing for congressional approval for his $695 billion tax cut plan, said he wants to see more improvement in the job market and the broad economy.
"The economy is in its second consecutive year of growth, yet it is not growing fast enough," Bush said at a ceremonial swearing-in for Treasury Secretary John Snow.
The president released his "Economic Report of the President," which forecast faster economic growth and played down the impact of his sweeping tax-cut proposals on government debt and interest rates.
Critics have charged the package is too tilted toward the wealthy and that it will deepen budgetary red ink.
The U.S. economy suffered a sharp slowdown in the final three months of last year, limping along at an annual rate of just 0.7 per cent.
But there have been a few hints of improvement lately, with some data series showing manufacturing reviving. Within the jobs report, there were gains in employment in a variety of sectors, though factory jobs fell by 16,000.
Despite glimmers of hope in the jobs report, it was clear the labor market is far from fully recovered.
Workers did not pocket any gains in their average hourly earnings, which stayed steady in January at $14.98 after a 0.3 per cent rise in December. The work week expanded slightly to 34.2 hours from 34.1 hours in the prior month.
The sluggish trends in the labor market over recent months have caused some economists to draw comparisons with the so-called jobless recovery of the early 1990s, when economic growth returned without solid hiring.
In a separate report on Friday, the Commerce Department said inventories at U.S. wholesalers surged 0.8 per cent in December, posting the biggest gain since the summer of 2000.
While higher inventories can sometimes be a sign businesses are seeing disappointing demand and accumulating unwanted stocks of goods, the latest data were inconclusive.
Some inventory-building may have been caused by stockpiling of petroleum amid worries over a possible war with Iraq and a production halt in Venezuela, a major oil-producing nation.