Jobless Rate Falls; Report Shows Vigor in Economy
In a sign of unexpected economic strength, the U.S. unemployment rate fell to 4.4% in November as employers produced a healthy crop of 267,000 new payroll jobs that more than offset layoffs elsewhere, the Labor Department reported Friday.
The job increase, focused on construction and service businesses ranging from retailers to mortgage brokers, underscored an enduring vitality within the labor market at a time when many analysts have been predicting an economic slowdown.
The unemployment rate, which had crept upward in recent months to 4.6%, now sits just above the level of last spring, when it fell to the lowest point in 28 years.
“This is a very strong report,” declared Lyle E. Gramley, a former governor on the Federal Reserve and a private economist in Washington. “The long-awaited slowdown is not here yet.”
While Friday’s job report clearly exceeded expectations, it also provided evidence of vulnerability within the economy. It pointed to a growing gulf between manufacturers, who are hard hit by financial turmoil overseas, and many other sectors that continue to thrive but whose jobs often pay less than factory jobs.
A growing roster of brand-name companies has announced major layoffs in recent days, prompting concerns that weakness in export-dependent manufacturing employment ultimately could spread to other, seemingly healthy sectors of the economy.
Thus the report’s fine print suggested to some that the economy may be less robust than the widely publicized job numbers suggest.
“The economic slowdown has been delayed. Generally, things are looking positive,” maintained Sung Won Sohn, chief economist at Wells Fargo & Co. “However, underneath the surface, I think an economic slowdown is in progress.”
In a reflection of how the economic expectations have changed over the last several months, the unexpectedly bullish job numbers sent the stock market shooting upward, with the Dow Jones industrial average rising 136.46 points to close at 9,016.14 and other indexes rallying in tandem.
Earlier this year, such news sent stocks tumbling out of investors’ fear that the economy was too strong--that lower unemployment would lead to higher wages and trigger inflation. Today, markets saw the news as evidence the economy might not be weakening.
Analysts also interpreted the news to effectively rule out prospects for further interest rate cuts when the Fed’s policy-making committee addresses that issue later this month.
The Labor Department report showed that low interest rates already imposed by the Fed have provided a kick to the construction industry, which added 47,000 jobs in November, offsetting a decline in factory jobs of the same magnitude.
Similarly, an interest-sensitive employment category, including real estate, finance and insurance, gained 23,000 jobs. The retail sector, which has benefited from a powerful wave of consumer spending, created 65,000 jobs.
Other areas of job growth include temporary-help firms, computer and data-processing services, and engineering and management services.
“Strong holiday hiring occurred in general merchandise stores, and eating and drinking places added 30,000 workers,” noted Katharine G. Abraham, commissioner of the Bureau of Labor Statistics.
For months, economic forecasters have been predicting a slowdown in the U.S. economy, reflecting downturns overseas, fallout from the financial crisis that has harmed farmers, manufacturers and energy producers, and extraordinarily high indebtedness of many households. In a Reuters survey, for example, economists predicted the unemployment rate in November would hold steady and payrolls would increase only by a lukewarm 158,000.
Indicators Not Showing Slowdown
Yet, despite some mixed signals, major economic indicators have yet to show that a broad slowdown is in progress. Indeed, November’s increase of 267,000 payroll jobs gained special notice because it followed a gain in October that was revised upward. According to the revision, the U.S. economy added 145,000 jobs in October instead of 116,000, as reported initially.
In a further sign of economic health, the Commerce Department said Friday that sales of new homes rose in October to the highest level in three months, fueled by low mortgage rates. New single-family home sales increased 0.8%, for an annual rate of 851,000 sales.
The new job report and other data have convinced most analysts that the Fed will not trim interest rates at a Dec. 22 meeting of its policy committee, a significant shift in sentiment from earlier in the fall when widespread fears of a global credit crunch sparked a series of three interest-rate cuts.
Those rate cuts are generally credited with rekindling the confidence of investors and consumers, thereby extending a prolonged period of solid economic growth.
“I think the chances of easing in the December meeting are pretty close to zero,” Gramley said.
Overseas Crisis Accents U.S. Woes
But the seeming split in the economy implied by rising layoffs amid falling unemployment was brought into sharp relief this week as woes in overseas markets and market-driven pressures for competitiveness brought a string of major cutbacks.
Boeing’s plan to eliminate 53,000 jobs was sparked in large measure by economic problems in Asia, where customers have quit buying planes. The financial collapse in Asia, which caused an oil glut, also was a factor in plans by Exxon and Mobil to merge, a deal that could lead to about 9,000 job cuts. Other cuts also are in the works, including plans by Johnson & Johnson to eliminate 4,100 jobs as a cost-cutting measure.
As some see it, retrenchment within the factory sector could have effects far beyond manufacturing, because such jobs often pay well, and factories also create business for all sorts of services, leading to a beneficial ripple effect throughout the economy.
“All jobs are not created equal. Manufacturing jobs are more important,” said Sohn, pointing out that many of the new retail jobs could prove to be only seasonal and less than full-time. “If manufacturing jobs continue to disappear, that does not augur well for the rest of the economy.”
Of the 47,000 jobs lost in manufacturing, the steepest declines were in factories producing industrial machinery, apparel and textiles, electronic equipment, transportation equipment and metals, such as steel. Also, hours worked in factories fell by 0.6%. More broadly, manufacturers have shed 245,000 jobs since last March when the domestic effects of Asia’s financial debacle became increasingly apparent.
Adding to the doubtful outlook for manufacturers, the Commerce Department reported Friday that factory orders fell 1.6% in October, the first such decline in five months and a larger-than-expected drop.
* OPTIMISM BUOYS STOCKS: Job growth sparked gains in the Dow and other indexes. C1
