Jobless rate drops, but economists say gain was on paper
Saturday, February 8, 2003
WASHINGTON -- A seasonal hiring spree at stores, restaurants and bars in January fueled the first recorded U.S. job growth in four months, and the unemployment rate unexpectedly fell to 5.7 percent. But economists cautioned the gains appeared to be on paper only.
The jobless rate dropped 0.3 percentage point from the 6 percent posted the previous two months, the Labor Department reported Friday. That was the largest one-month drop in nearly five years.
Analysts had expected the rate to hold steady with modest job growth instead of the payrolls increase of 143,000 -- the largest since November 2000. That follows a loss of 156,000 jobs in December.
The new report appeared to offer good news for job seekers, but statistical quirks overstated January's gains in hiring.
"I don't think anyone is taking any solace in this," said Mark Zandi, chief economist at Economy.com. "The average American out there knows how bad the job market is. They don't need the unemployment report to tell them otherwise."
The report initially lifted Wall Street, but the elevation of the nation's terror attack alert level wiped out small gains. At close, the Dow Jones industrial average was down 65.07 points and the Nasdaq had fallen 19.26 points.
Retail jobs were the bulk of January's new hiring, with 101,000 positions added after 99,000 were cut in December. Holiday hiring was well below normal, meaning fewer seasonal workers were laid off in January. That means seasonal adjustments accounted for January's large gain, economists said.
"The big swing of 101,000 jobs in January was statistical, not real," said Joel Naroff, president and chief economist of Naroff Economic Advisors.
The surprise drop in the unemployment rate also doesn't appear to reflect the true jobs market, analysts said.
The Labor Department, which computes the monthly rate based on information collected in a survey of households, has changed some of its methodology. Therefore, comparisons of January's rate with December's, which was derived using the old methods, cannot be made, department officials said.
"We are comparing apples and oranges," said Sung Won Sohn, chief economist at Wells Fargo & Co. "I'm not sure we can conclude the job market has improved. We shouldn't get too excited."
Economists still think the unemployment rate will continue to rise in coming months. That's because businesses are wary of making big commitments in hiring and spending in the face of a possible war with Iraq and a nuclear standoff with North Korea.
"Firms will not start gearing up until the war situation is resolved," Naroff said.
The economy is growing, but not fast enough, President Bush said Friday. "We will not be satisfied until this economy grows fast enough to employ every man and woman who seeks a job," he said at the swearing-in ceremony of a key member of his economic team, new Treasury Secretary John Snow.
To jump-start the ailing economy, Bush wants to spend $670 billion on an economic stimulus package heavy on tax cuts. A centerpiece of his proposal is to slash taxes on corporate dividends at a 10-year cost of $385 billion. But that provision that has drawn sharp criticism from Democrats and opposition from some congressional Republicans.
The Federal Reserve last month decided to leave a key interest rate unchanged at 1.25 percent -- a 41-year low -- saying that current rates are sufficiently low to help perk up the struggling economy. Economists expect the Fed to hold rates through the summer and possibly the fall.
The new jobs report did have some bright spots. Layoffs appear to be easing, suggesting some employment stabilization.
Construction jobs increased last month. Government hiring essentially was flat, meaning gains were in the private sector. That suggests "there may be more gains in our future," said Bill Cheney, chief economist at John Hancock Financial Services.
Manufacturing, which has been hardest hit by the ailing economy, continued to lose jobs last month, but the hemorrhaging slowed a bit. Factories cut 16,000 jobs last month, the smallest decline in six months.
"Overall, the report supports the view of a plodding, but still improving economy," Cheney said. "It does not signal a sudden, dramatic turnaround."