Jobless Rate Rises; Stock Markets Rally
The economy’s uncanny ability to generate new jobs suddenly faltered in February, driving the nation’s unemployment rate up for the first time since June and persuading some that the hot economy might be cooling.
The stock markets rallied, with investors apparently betting the new data would weaken the Federal Reserve’s resolve to speed up a widely anticipated series of interest rate increases. The Dow Jones industrial average rose 2%, to 10,367.20, while the Nasdaq jumped 3.4%, to a record 4,914.79.
But economists said the unexpected slowdown probably had more to do with chilly winter weather than with recent attempts by the Federal Reserve to chill red-hot economic growth.
The U.S. unemployment rate rose to 4.1% from 4% in January. And only 43,000 jobs were added, according to the Department of Labor, notably fewer than the 225,000 jobs that private economic forecasters had expected.
Average hourly earnings rose by an annual rate of 3.6% in February, in keeping with a trend in recent months of wage increases ranging from 3.4% to 3.8%.
Private economists said the sudden slowdown in job creation didn’t necessarily mean that the Fed’s series of interest rate hikes is starting to have the desired effect of smoothly braking economic growth. They saw much more powerful evidence of continued strong growth in other recently published data, such as auto sales, consumer purchasing and federal spending on highway construction.
And even within the less-than-stellar jobs data, economists were able to find hidden signs of economic strength. In particular, they focused on the manufacturing sector, which until late 1999 was losing tens of thousands of jobs per month. Friday’s report showed that factories added 5,000 jobs in February--not a spectacular number, to be sure, but coming after January’s increase of 21,000 factory jobs, it marked the first time in two years that manufacturing employment has increased two months in a row.
The greatest manufacturing job growth took place in plants that produce cars, electronic equipment and industrial machines.
“We also see a longer workweek in manufacturing and more overtime in manufacturing,” said Paul L. Kasriel, chief U.S. economist at Northern Trust Co. in Chicago. “It appears we are seeing a strengthening in our factories.”
Overall, February’s relatively weak job data appeared to be a backlash from January’s virtual job explosion, which in turn was heavily influenced by weather. In January, 384,000 jobs were added to the U.S. economy, many of them turning up on statistical tallies because the Labor Department took its survey during an unusually warm week. Because it was balmy, such job categories as construction and leisure services grew by tens of thousands that month.
In February, by contrast, the employment survey was taken during a more typically cold and stormy winter week, and many of the outdoor workplaces had been shut down or scaled back. Construction, which had added an eye-popping 116,000 jobs in January, lost 26,000 jobs in February. The “amusement and recreation services” category, which includes jobs in theme parks, mini-golf courses and other such outdoor leisure spots, rose by 32,000 jobs in January, only to fall back by 7,000 jobs in February. Employment in landscaping and food processing followed similar patterns.
“What really happened is we had a little bit of a payback” for January’s employment surge, said Mark P. Vitner, an economist at First Union Corp. in Charlotte, N.C. He advised averaging the January and February job-creation figures to see what was really going on in the job market. That yielded an average 213,000 new jobs per month.
“That’s a pretty solid pace,” Vitner said. “The balance of economic numbers shows that the interest rate increases so far haven’t had that much effect.”
Indeed, U.S. auto sales rose by 11% in February from the same month last year, with particular strength in sales of the high-end, gas-guzzling sport-utility vehicles consumers ought to be shunning if they really fear today’s soaring gasoline prices. If car and truck sales continue at the same torrid pace for the rest of this year, 18.7 million vehicles will be sold, Kasriel said.
“That’s a full million units higher than January, and we thought you couldn’t get any higher than that,” Kasriel said. It was the fastest pace of auto sales growth since 1986.
Before Friday’s data, speculation had been building that such indicators of unimpeded growth might persuade the Fed’s Open Market Committee to raise interest rates more sharply than previously expected at its next meeting March 21--by 0.5%, instead of just the more widely anticipated 0.25%.
But Wall Street apparently decided Friday’s job data eliminated the rationale for the larger increase.
Meanwhile, Federal Reserve governor Laurence H. Meyer appeared Friday at a conference in San Francisco, where he offered his explanation of recent monetary policy and thoughts on what it may “suggest . . . going forward.”
Meyer dwelt on structural changes in the U.S. economy, particularly changes in the productivity of American business. Productivity can have powerful economic effects when it rises or stagnates, but Meyer noted that these effects are almost impossible to measure accurately at the moment, making it hard for the Fed to know how much to rely on the indicators it has traditionally used to set monetary policy.
