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The final piece of an increasingly impressive economic recovery appears to be falling into place as employers cautiously welcome new workers, expanding U.S. payrolls after nearly three years of job losses.

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Gary Schwing, chief executive of a construction supply company in Houston, is among those planning to add workers in the coming year based on a growing pipeline of major projects, including new power plants and oil rigs. Schwing expects to add seven or eight workers to the 15-person staff of Mill and Safety Supply Co., responding to the needs of customers who will be creating hundreds of construction jobs.

“What I’ve seen is a significant change in optimism across the different spectrums of business that I look at and have associations with,” he said. “Customers have a much higher level of optimism.”

He said he is especially encouraged that companies have become more willing to commit to major capital projects that depend on increased demand for oil and energy.

Manufacturing mending?
Schwing’s perception is consistent with economists who forecast the government to report a fourth-straight month of job growth Friday, possibly including the first growth in more than three years for the hard-hit manufacturing sector.

“We’re looking for a very good number,” said David Wyss, chief economist for Standard & Poor’s. “We saw the big jump in output in the third quarter, and the rising employment is something pretty much on schedule based on that.”

On average, analysts expect the economy to show an increase of 140,000 jobs for November, a bit above the modest average of the past three months. Some economists believe the number could be well above that consensus figure, especially after a survey by the Institute for Supply Management indicated this week that service-sector employment expanded in November for a second straight month.

Others are more cautious, including Gary Thayer, chief economist for A.G. Edwards in St. Louis, who said he is conservatively projecting job growth of only about 100,000.

“As we get into the more mature phase of the economic cycle productivity will come down to a more reasonable level and job growth will pick up again, but we don’t have any evidence of that yet,” he said.

Weekly claims for jobless benefits were somewhat higher than expected Thursday but were still consistent with an improving job picture, analysts said.

Jobless rate seen steady
Any increase in payrolls is unlikely to be enough to move the unemployment rate down from the 6 percent rate posted in October, according to forecasters polled by Thomson Financial. As the economy improves, more people typically begin looking for work, which means the unemployment rate might not change much over the next year, said Mark Zandi, chief economist of Economy.com.

That means wage growth is unlikely to accelerate from its current low level until 2005 or 2006, he said. It also means the Federal Reserve is unlikely to raise short-term interest rates anytime soon.

Ed McKelvey, senior economist for Goldman Sachs, argues that the Fed will not raise rates until the unemployment rate shows “substantial progress” toward a presumed target of 5 percent, which is seen as close to full employment.

Most analysts expect the Fed to keep rates on hold at least until June of next year, although the central bank is likely to acknowledge the improving economic data when Chairman Alan Greenspan and his colleagues hold their scheduled meeting next Tuesday.

The expansion which began in November 2001 is now two years old, and the economy has grown in each of the past eight quarters, including the phenomenal 8.2 percent annual-rate surge in the summer and early fall. But the nation’s workforce is still 2.4 million jobs short of the peak achieved in early 2001, leaving some experts to question how rapidly employment will grow in coming months.

“We don’t know to what degree productivity — which just exploded — is holding down job creation. It is so unprecedented,” said John Challenger, chief executive of Challenger, Gray & Christmas, an outplacement firm. “We are in a time right now where we don’t know really quite what is happening.”

In the so-called jobless recovery of the early 1990s, by the time the recession had been over for two years, the economy had surpassed its previous employment peak and was reliably cranking out more than 200,000 net new jobs a month.

Wyss said those kind of numbers are possible early next year, “but the timing is difficult to judge.”

One factor that may be keeping job growth down is the increased use of contract workers, which may remain a persistent feature of the economic landscape until the unemployment rate declines substantially, he and other analysts said. The high cost of health care and other benefits makes many companies cautious about hiring, especially when there is a large pool of available workers.

The continued “offshoring” of U.S. jobs also is likely to keep a lid on job growth and wages, Zandi said. Still, he and others are increasingly confident that the economy at long last has begun a solid and sustainable recovery.

Schwing, the construction industry executive, said he sees the signs in his monthly meetings with a group of about a dozen chief executives connected through TEC International, which provides support to small and mid-sized businesses.

“Over the last 12 months there has been a dramatic increase in optimism” among the executives, who represent a wide range businesses including oil-related industries and services, he said.

“We’ve got a lot of things aligned right now, with very easy monetary policy, tax cuts and a weaker dollar,” Thayer said. “We seldom see all those things aligned, so there is the potential for next year to be a pretty good year.”

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