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Archive for Saturday, January 5, 2002

Analysts hope economy is beginning to stabilize

January 5, 2002

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— The nation's unemployment rate climbed to a six-year high of 5.8 percent in December as businesses slashed payrolls for a fifth straight month. It was the longest stretch of job losses in a decade as the economy continued to falter in recession.

The economy lost more jobs last year than in any other in the past two decades, but December's 124,000 job losses were sharply below the previous two months, the Labor Department reported Friday. That raised hopes that the economy could be stabilizing after the terrorist attacks.

"It's as if we're sliding downhill in the dark," said Bill Cheney, chief economist with John Hancock Financial Services. "We're on a more gentle slope now, so we hope that we're at or near the bottom. But we really can't tell yet."

Stocks were up Friday. The Dow Jones industrial average rose 87 points and the Nasdaq index 15.

The employment report provided fresh fuel for political debate.

The administration tried to increase pressure on Senate Democrats to take up President Bush's economic stimulus program now called the "economic security" package when Congress returns this month.

Democrats say the package needs to offer fewer tax cuts for the wealthy and more help for thousands of people out of work. Republicans counter that the tax cuts are needed to spur job creation.

"The most important thing that we can do for dislocated workers is to help them find a new job," said Labor Secretary Elaine Chao. "The best thing that we can do for them is not to help them remain on unemployment insurance."

Senate Democratic leader Tom Daschle said that a year ago the nation could have made "virtually any urgent investment we needed. We do not have that flexibility and those resources today, because Republicans chose ideology over experience."

The unemployment report showed that businesses cut 1.08 million jobs from their payrolls in 2001 the largest, single-year loss since 1982 when 2.16 million were cut as the country struggled through the steepest downturn since the Great Depression.

Last year's was the first annual job loss since businesses trimmed 844,000 jobs in 1991, during the last recession.

The 10-year-long economic expansion that followed the longest stretch in U.S. history pushed the jobless rate down to a 30-year low of 3.9 percent in October 2000.

In 2001, the employment level peaked in March, the month that the National Bureau of Economic Research has ruled that the recession began. Since then, businesses have cut 1.4 million jobs, with 1.1 million of those coming in the last four months of the year as the slumping economy received a body blow from the terrorist attacks.

The job market will be one of the last signs of recovery if, as analysts project, the nation emerges from recession sometime this year, probably by spring. Even after the recovery begins, the unemployment rate is expected to continue rising until businesses gain enough confidence to begin hiring back workers.

"We expect the recovery to be slow and sluggish, not rapid and robust," said Donald Straszheim of Straszheim Global Advisors.

Many economists predict the jobless rate will top out at around 6.5 percent by June or July, plateau for a while, and start going down in the fall or winter.

December's loss of 124,000 jobs reflected continued declines in manufacturing, retail, air transportation and temporary employment services. But the hemorrhaging slowed, offset by growth in services and government. Job losses had averaged about 400,000 a month in October and November.

Last year was a particularly bad year for manufacturing, which shed 1.3 million jobs or about 7 percent of its work force.

December declines also were heavy in retail with 77,000 job cuts, particularly at general merchandise stores and retailers such as toy stores and jewelry stores, both of which fell short of their typical holiday hiring.

Those declines were tempered slightly by job gains at auto dealerships as free financing enticed customers. Retail had added 200,000 jobs by July, but losses since then have left employment down by 73,000 for 2001.

Air transportation, weakened by the terrorist attacks, lost 26,000 jobs in December. There also were sizable losses in communications and public utilities.

But service employment grew by 72,000, led by hospitals, home health care and private education. In government, job gains totaled 63,000.

Temporary employment firms continued to lay off workers, cutting 55,000 positions in December. The industry has shed 688,000 jobs since September 2000, or 19 percent of its total.

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