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Archive for Saturday, May 4, 2002

U.S. jobless rate jumps to 6 percent

May 4, 2002

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— The nation's unemployment rate jumped to 6 percent in April the highest in nearly eight years as job seekers streamed back into the market faster than companies added new positions.

The Labor Department's latest snapshot on employment, released Friday, was a fresh sign the economic recovery that started out at a sprinter's pace appears to be slowing to a jog, economists said.

They predict job hunters will continue to face tough times in the coming months even as the economy makes a comeback.

"The economy has turned a corner, but the recovery is a painful process," said Mark Zandi, chief economist with Economy.com. "The economy doesn't move in a straight line. It has fits and starts. Ebbs and flows. We're in the middle of an ebb."

Companies whose revenues and profits took a hit during the slump are worried about the recovery's staying power and are reluctant to quickly hire back workers, crank up spending and make other big commitments until they are convinced the turnaround is for real, economists said.

The big spike in the unemployment rate jolted investors on Wall Street, giving them another reason to worry about the recovery's strength. The Dow Jones industrial average fell 85.24 points to close at 10,006.63, trimming part of the 272 points gained during the previous three-day rally.

President Bush said the unemployment numbers reaffirmed his belief that while some indicators suggest the economy is recovering, he will not be satisfied until more Americans are employed.

"So long as anybody is looking for work, we've got problems," Bush said. "I've been saying all along that the growth number of the first quarter of this year was very positive, but I said 'Look, I'm not confident. We've got more work to do."'

Payrolls grew by a modest 43,000 in April, the first time U.S. companies added jobs in nine months. But job growth wasn't strong enough to take care of the 565,000 people who entered the work force during the month. That caused the unemployment rate to rise from March's 5.7 percent rate.

"People were hearing about economic growth and jobs and they came out of the woodwork to look for them,' said Sung Won Sohn, Wells Fargo's chief economist.

Companies actually cut 21,000 jobs in March, a big revision from the 58,000 job gain the government previously reported.

Bush signed into law in March an economic stimulus package that included an extension of jobless benefits.

William Cheney, chief economist for John Hancock Financial Services, said he believed the job creation in the early part of the current recovery will match the lackluster job growth immediately following the 1990-91 recession.

"We're echoing the last economic cycle when we had minimal to no job growth for more than a year after the recession ended," he said.

Given the fledgling recovery, most economists believe the Federal Reserve will leave interest rates now at 40-year lows unchanged when it meets Tuesday. Friday's report raises the odds that the Fed will hold rates steady through the summer, analysts said.

Even with the disappointing jobs report, economists said they weren't worried that the economy might backslide into a downturn a "double-dip" recession.

Many believe the economy is growing at a moderate rate of 3 percent to 3.5 percent in the current quarter. Although, that would be a decent pace, it would be a slowdown from the sizzling 5.8 percent growth rate registered in the first quarter.

Economists predict the jobless rate will peak at around 6.5 percent by June. That's based on the belief that companies will be slow to hire and job growth won't be sufficient to handle more people entering the labor force.

April's jobless rate was the highest since August 1994, when unemployment also was at 6 percent. Despite the rise in the jobless rate, there were some positive developments.

After more than a year of sustained job cuts, temporary help firms added 66,000 positions in April, the third straight month of job gains. Economists found that heartening for future jobs growth because companies often hire temporary workers before they take on new full-time workers or rehire laid-off workers.

Job growth in services rose by 87,000, recouping job losses that totaled 245,000 in October and November. Employment in the insurance industry rose by 9,000, after suffering six months of job losses.

At factories hardest hit by the recession the flurry of job losses abated. Manufacturers shed 19,000 positions in April. The industry's job losses averaged 37,000 a month from February to April, compared with average monthly losses of 119,000 from March 2001 to January.

However, the construction industry cut 79,000 jobs, bringing total job losses this year to 155,000. Economists said some of the weakness comes from a slowdown in commercial construction, such as office buildings and malls.

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