U.S. Economy Sees Surprise Surge in ’98
The nation’s economy surged forward at the end of 1998, capping workers’ best year since the 1960s as it shattered most forecasts of job growth for December and pushed down the unemployment rate to an unusually low 4.3%.
Despite a flurry of headline-making layoffs throughout the autumn, U.S. employers created 378,000 nonfarm payroll jobs last month, the largest gain in more than a year, the Labor Department reported Friday.
The December gain--almost double economists’ expectations--followed a solid increase of 251,000 jobs in November, when the unemployment rate stood at 4.4%.
The December employment figures were skewed upward by lingering mild weather, which kept construction crews busy longer than usual, accounting for 104,000 of the new jobs. Still, analysts were struck by the U.S. economy’s powerful, enduring performance in a year that featured withering recessions throughout Asia and financial mayhem in much of the world.
“The economy in December was in first-rate shape--I don’t think there’s any question about it,” declared David M. Blitzer, chief economist at the Standard & Poor’s rating service in New York. “All the nervousness and excitement about layoff reports should be heavily discounted.”
The new statistics underscored that broad segments of the American public are benefiting from the economic expansion, although disparities continue. The unemployment rate in December was 3.8% overall for whites, 7.6% for Latinos and 7.9% for blacks.
Such figures could have potentially significant political implications. President Clinton, who is continuing to draw broad public support as the impeachment process grinds forward, quickly seized on the new data during a speech at the Detroit Economic Club. Echoing the metaphor used by John F. Kennedy, Clinton compared America’s growing economy to “a rising tide” that lifts all boats.
“Today we can thankfully ask the question: America, what went right?” Clinton declared.
In light of the new statistics, most economists now say it is highly unlikely that Federal Reserve officials will reduce interest rates when they meet in February, although analysts widely expect the economy to slow from a sprint to a walk in 1999.
For the year, the nation’s unemployment rate averaged just 4.5%, the lowest annual level since 3.5% during the Vietnam War in 1969 and a level that until recently many economists had believed was deep within the danger zone for renewed inflation. The general level of U.S. joblessness has not been this low in peacetime since 1957, when it averaged 4.3% for the year. U.S. employers in 1998 added 2.9 million jobs, following a gain of 3.4 million jobs the year before.
The new statistics fit neatly into a picture of unforeseen economic vitality, characterized by high employment and low inflation. The picture is considered all the more striking because the expansion--about one year shy of becoming the longest on record--was long derided by critics as lackluster in jobs and other measures of health.
“If, three years ago, someone had said the economy would grow 3.5% to 4% over the next three years and inflation would drop from 3.5% to 1.5%, you would have been laughed out of the financial markets and the economics profession,” said Bill Sharp, senior U.S. economist at Chase Securities Inc. in New York. “But that’s what we’ve had occur, and this report is consistent with that.”
The role played by enthusiastic consumers, abetted by low interest rates, was a clear theme of Friday’s jobs report.
Retail establishments added 53,000 payroll jobs in December, reflecting big increases at restaurants, department stores and building-supply stores. Real estate firms added 5,000 jobs, and mortgage brokers created 4,000.
For the year, temporary help firms, computer and management services and public relations companies all reported job gains. Health services firms, scrambling to cut costs, increased employment by just 131,000 for the year, a sharply smaller rise than in 1997.
The jobs report did include signs of economic weakness.
Manufacturers of computers, farm equipment and other industrial machinery lost 10,000 jobs in December, completing a bleak year in which factories and mine-related enterprises shed some 269,000 jobs, largely because of downturns overseas and the fallout of plunging commodity prices.
The trend away from manufacturing jobs is long term. In the 10 years ending last month, manufacturing employment fell by 800,000 to 18.6 million even as mining, construction and the service-producing industries added 21.3 million jobs to reach a total of 108.5 million.
Chase’s Sharp said the ongoing distress within manufacturing suggested that the U.S. economy, for all its strength, was not quite as solid under the surface as recent statistics might suggest. “A decline like that over a time period like that is usually associated with recessions,” he said.
“Even though the payroll [jobs] number was much higher than expected and the unemployment rate declined, it doesn’t change the trends that are showing some slowing of activity,” he added.
For instance, an uptick in first-time claims for unemployment insurance in mid-December is consistent with the view that many builders laid off construction workers as winter weather finally set in last month, and that future payroll gains will not be as robust.
More broadly, many economists expect consumers to cut back on their spending increases, which have been in the brisk range of 4% a year, because the household savings rate has virtually disappeared.
“Sometime--and probably sooner, not later--consumer spending growth will get reined in,” maintained Blitzer.
That is a key reason that he and many other forecasters expect economic growth to slow in 1999 toward the 2% range, compared with 1998’s estimated growth boom of 3.5% to 4%. Final figures are not yet available.
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U.S. Unemployment
Percentage of U.S. work force not employed, seasonally adjusted:
December 1998: 4.3%
Source: Labor Department
