By John W. Schoen Senior producer
msnbc.com
updated 10/6/2006 12:16:03 PM ET 2006-10-06T16:16:03

By just about any measure, the last two years have been good for job seekers: since Sept. 2003, some 5.5 million new jobs have been created. But with the economy showing clear signs of a slowdown, so too is the pace of job creation. And unless and until businesses get a better sign of where things are headed, the job market could get even tighter.

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Friday's government employment report confirmed what many analysts have been predicting: Job growth is slowing sharply. Employers added just 51,000 jobs in September, the fewest in almost a year, providing fresh evidence that the economy has moved into a slower phase.  

The slowdown in new jobs has been accompanied by a pickup in announced layoffs. The total number of planned layoffs was up 54 percent in September — topping the 100,000 mark for the first time since January, according to a monthly report compiled by the employment consulting firm Challenger Gray & Christmas. That’s up from about 65,000 layoffs announced in August and roughly 37,000 in July — a six-year low. Hardest hit are industries with slowing sales, like auto manufacturing and housing.

“The economy is at a point where it may very well have reached the peak of this cycle in terms of low unemployment levels,” said John Challenger, chief executive of the consulting firm. “It’s still very low, but it looks now like we’re starting the retreat.”

After several years of strong growth, some slowdown is to be expected, say economists. With unemployment rates about a percentage point above the 30-year lows hit during the dot-com boom, the U.S. job market is still holding up well. But like the surge in housing that has now come to an end, higher-than-average employment levels can’t last forever, according to economists, who talk about a “natural” level of employment.

“You can even go beyond the limit for awhile, but it wears on the system if you run your car faster than it's meant to be run on a regular basis,” said Joel Prakken, chairman of Macroeconomic Advisers, which compiles the monthly ADP report.

In fact, some analysts say one reason job growth is so slow is that companies are having trouble finding qualified workers. Even though job growth was practically non-existent in September, the nation's unemployment rate dropped to 4.6 percent from 4.7 percent.

Joel Naroff of Naroff Economic Advisors pointed out that job growth for August was revised upward sharply to 188,000 from the 128,000 originally reported.

"The lack of workers is pressuring wages, which are up 4 percent over the year," he said in a note to clients. "That is the fastest increase in over five years. So, maybe the lack of job growth was due more to an inability to find suitable workers than to the unwillingness to hire."

Other analysts noted that the Department of Labor also disclosed a "benchmark revsion" indicating that job growth was significantly stronger than previously reported in the period from March 2005 to March 2006.

The future outlook for hiring depends heavily on how well corporate profits hold up, said Challenger. Typically, the pace of layoffs picks up in the final quarter of the year.

“What happens, especially in a slowing economy, is that more companies pop up that are not meeting their numbers,” he said.

Though consumer confidence is holding up relatively well, there are early signs that some workers are beginning to get nervous about job security. An employment index compiled by Hudson, a management recruitment firm, found that that worker confidence slipped two points in September from the month before — a five-point drop since February.

Managers in the tech industry remained relatively optimistic, according to Hudson's survey. Manufacturing workers were among the most pessimistic. Regionally, workers in Washington,  Atlanta and Tampa, Fla. were feeling best about their job security. Those in New York, Philadelphia and Boston were more pessimistic than the national average.

The job outlook is also tied closely to skill level, said Challenger.

“For skilled workers workers — with college degrees or more — unemployment is at 1.8 percent," he said. “Definitely the supply in some of the hotter markets in the country is virtually nil. That puts real pressure on wages, and that starts to cycle back the other direction.”

Though the job cuts so far this year have been coming hardest in the automaking industry, telecom and computer firms are also cutting back. And the slowdown in housing is expected to bring further layoffs in construction-related industries.

Retailers may also feel the pinch of a slowdown in consumer spending as flattening home prices shut down a three-year binge in home equity borrowing. Wal-Mart is moving to cut costs by using more part-time workers and capping wages, according to reports published this week. Despite lower-than expected sales growth in September, the world’s largest retailer told Wall Street Thursday it would stick with its profit forecast for the year.

Wal-Mart isn’t the only one looking to expand their ranks of temporary and part-time workers.

“The staffing industry has been relatively flat all year, but our most recent numbers that just came out showed the strongest growth we’ve shown all year,” said Steve Berchem, vice president of the American Staffing Association.

MSNBC.com's Martin Wolk contributed to this report.

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