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Tuesday, December 10, 2002


The U.S. unemployment rate shot up to 6 percent in November as employers reduced their payrolls by the largest amount since February, the US government said on Friday in a weak jobs report that offered little short term optimism for the economy. The jobless rate hit its highest level since April, jumping three-tenths of a percentage point from October's 5.7 percent, according to the Labor Department. Many US labour market watchers had been expecting a more modest rise to about 5.8 percent. At the same time, the number of workers on U.S. payrolls outside the farm sector fell by 40,000 last month, a worrisome showing compared to a consensus expected gain of 38,000. The hard-hit manufacturing sector shed 45,000 jobs last month. Furthermore, in a worrying indication that businesses are remaining cautious in the run up to the Christmas holiday shopping season, retail jobs sank 39,000. All this, when placed alongside the rapidly rising US productivity number gives some cause for concern that a deflationary environment may be slowly but surely arriving.

The monthly decline in the nation's job market was the biggest in nine months. Highlighting the slide was a further reduction in manufacturing payrolls, which contracted by 45,000 jobs in November. It was the 28th consecutive drop in monthly employment at the nation's factories.

While manufacturing only represents about 20 percent of the nation's output, analysts said the economy would be hard-pressed to return to a sustained growth path until factory output and employment start to rebound.

The manufacturing numbers, which included a third successive decline in aggregate hours worked, strongly suggest that industrial production fell again in November. The Federal Reserve is scheduled to release industrial production statistics on Dec. 17. In advance of the jobs report, economists had been forecasting a modest 35,000 to 40,000 increase in nonfarm payrolls. Part of the optimism was based on a string of declines in new weekly claims for unemployment benefits. But the hopeful feeling was inaccurately based, some analysts said."This will cause people to remember that claims tell you how many people are getting laid off," said David Resler, chief economist at Nomura Securities International. "They tell you nothing about how many people are being hired."

On a brighter note, employment in the service sector rose. Health-related companies made up more than half the November increase, with notable gains in hospitals and nursing homes. But employment at temporary-help agencies fell for the second month, after several months of steady gains. Such employment is closely watched by economists because companies often seek temporary help as their businesses start growing again, instead of taking on full-time workers. Other big industries showed little change in November, including construction and government, which had a large gain in October. Economists said the rise in the unemployment rate would undoubtedly be a topic of discussion when Federal Reserve policy-makers meet on Tuesday. But the Fed, which last month announced a sharp cut of half a percentage point in short-term interest rates, is very unlikely to approve another rate cut anytime soon, the economists said. "They made a strong statement last month, and will sit back and watch for a while," said Ward McCarthy, a managing director at Stone & McCarthy, an economic research firm in Princeton, N.J. "But they have to be disappointed with these numbers." The rise in the unemployment rate is almost certain to stoke talk about the need for further stimulus, probably in the form of tax cuts, analysts said. "There is a very high chance of some sort of new fiscal package," Mr. Harris at Lehman Brothers said.
Source: New York Times

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