Job Growth Falls Short of Forecast

The nation’s payrolls grew by only 21,000 positions in February, about one-sixth of what had been predicted, delivering a sharp blow to President Bush’s assertion that a growing economy would lead to brisk job gains.

February’s unemployment rate remained a comparatively low 5.6%, but only because hundreds of thousands of workers -- many discouraged by poor employment prospects -- dropped out of the labor force and were not counted as jobless, the Labor Department reported Friday.

The disappointing job increase, far below the 125,000 gain expected by analysts, boosted the already considerable political pressure on Bush, who promised that three years of tax cuts would produce a labor market turnaround.

It provoked barbed attacks by Bush’s presumptive opponent, Massachusetts Sen. John F. Kerry. And it reinforced fears that trade and technology were damaging the U.S. economy’s much-vaunted ability to create jobs.

But the report eased Wall Street fears that the Federal Reserve might soon increase interest rates. Interest rates set by the bond market plunged, a move that could lower mortgage rates and other borrowing costs.

Seeking to staunch the political fallout from the jobs report, administration officials rushed out with reassuring words Friday. Treasury Secretary John W. Snow, who surprised many last fall with his bullish prediction of job growth, asserted that the economy had “turned the corner” on growth. “I’m confident we’ll see strong jobs numbers.”

But the lack of job growth in February makes it less likely that the White House can meet its forecast of an additional 2.6 million jobs by year’s end.

Democrats used the latest report to tear into the president’s jobs record. “At this rate,” Kerry said in a statement, “we won’t dig ourselves out of the jobs hole George Bush has gotten us into for almost a decade.”

Kerry said he would “help American business create and keep new jobs here at home,” but did not offer specifics.

The jobs growth was effectively canceled by a downward revision of December and January job totals by a combined 23,000.

Since August, when U.S. payrolls reversed a long slide, the economy has added only 364,000 new jobs, or about the number it would produce during a single good month in the late 1990s boom.

Stock investors initially reacted by driving share prices down. But the major market measures ended the day about flat. The Dow Jones industrial average closed up 7.55 points, or 0.07%, to 10,595.55. The Nasdaq composite index ended down 7.48 points, or 0.36%, to 2047.63.

The story in the bond market was very different. Bond investors concluded that the weak jobs showing meant the Fed would leave its signal-sending short-term federal funds rate unchanged indefinitely. It is currently at a 45-year low of 1%. Bond investors reacted by bidding up the price and driving down the market interest rate on existing bonds. The market rate, or yield, of a typical 10-year Treasury note fell 0.17 percentage point to 3.85%.

Analysts have been consistently wrong in their jobs predictions, because they have assumed that the traditional link between economic and employment growth would eventually kick in. The economy grew a strong 4.3% last year, and many forecasters say it could hit 5% this year -- growth rates that in the 1990s were associated with the addition of 200,000 jobs or more a month. Employers have relied on strong increases in worker productivity in the past two years -- due in part to technology advances -- to squeeze more output from existing workers and avoid hiring new ones.

Some economists said Friday that they still think stronger job growth is just around the corner. They pointed to several details in the new employment report as evidence.

The nation’s manufacturing sector, for example, has lost jobs for more than 40 straight months, but this time it shed only 3,000 jobs -- substantially fewer than the 100,000-plus it was losing as recently as early last year. Hiring of temporary help -- sometimes considered an earlier indicator of job trends -- was up 32,000.

But even economic optimists admitted new doubts about when the jobs recovery would begin.

“It looks like booming trade and productivity gains can give us a strong economy with mediocre job growth for an extended period,” said Robert J. Barbera, chief economist with ITG/Hoening, a New York brokerage firm.

Some analysts have begun worrying that grudging job growth, coupled with a steady slowing of wage growth over the last 18 months, could begin eroding the benefits of tax cuts, government spending and record-low interest rates. That in turn could cause the economy to slow, some fear.

The Labor Department said that average hourly earnings rose only 1.6% over the last year, their slowest growth since 1987. Average hourly earnings rose 3 cents in February to $15.52, while the average workweek held steady at 33 hours 48 minutes.

“Consumer demand has been very strong, and we’ve always assumed that that would cause the labor market to pick up,” said William Dudley, chief U.S. economist with Goldman Sachs & Co. in New York. “The big question now is: Does the labor market converge up toward demand, or does demand converge down to the labor market?”

February’s job market was so weak that 392,000 workers gave up looking for positions altogether, according to the Labor Department. Their departure pushed the nation’s labor-force participation rate, which measures the workforce as a fraction of the population, to a 15-year low of 65.9%.

The average period of unemployment hovered near a two-decade high of 20.3 weeks, up from January’s 19.8 weeks. Nearly 23% of the 8.2 million people counted as unemployed had been out for six months or more.

That put most of them beyond the reach of unemployment benefits, which now run for only six months following the demise of the federal extended-benefits program, which the administration and Congress allowed to expire in late December. The federal program had provided three months of extra benefits.

While the overall unemployment rate remained at 5.6%, the rate for blacks declined to 9.8% from 10.5%. The rate for Latinos edged upward to 7.4% from 7.3%.

Government hiring -- mostly of schoolteachers -- accounted for virtually all of the net job growth in February. Private payrolls were flat during the month.

Government employment rose by 21,000 during the month. While service companies added 46,000 jobs, most of them temps, the gains were offset by losses elsewhere in the private sector, including a weather-related drop of 24,000 in construction.

The latest sign of job market weakness comes at a politically awkward moment for the president. Bush has just launched his first barrage of television advertisements, which portray him as, among other things, a strong economic steward, and he and his supporters have begun training their sights on Kerry.

“The Bush campaign cannot be happy about the timing [of the February jobs number], because it puts a pall on the picture they’re trying to paint,” said Thomas Mann, a political observer with the Brookings Institution in Washington. “It may be that their first $10 million ad buy may have been for nothing.”

Indeed, the report may be especially galling to the president, because he has done what some economists recommend in times of economic weakness: cut taxes and run up big deficits. The economy is putting on its strongest performance since it came roaring out of the deep recession of the early 1980s. But it hasn’t spurred job growth.

“You can’t accuse Bush of not applying enough counter-cyclical stimulus,” said economist Barbera, once a key aide to the late Democratic presidential aspirant Paul Tsongas.

This does not mean the jobs issue is a political slam-dunk for the Democrats. The weak jobs figures could improve by the time voters begin making their decisions.

In addition, the prevailing diagnosis of the cause of the sluggish job creation includes trade and technology-driven productivity gains. Those are not easy things for any politician to address, especially not a Democrat.

“In essence, what’s on trial in this election is free trade and technology,” Barbera said. But neither is closely identified with Bush, he said.

“This is [former Democratic President] Bill Clinton’s agenda,” he said. “The delicious irony here is that the Democrats are running against Bill Clinton’s embrace of free trade and technology.”