Job growth slowed unexpectedly in November to the weakest pace since the summer “soft patch,” the government said Friday, capping a flurry of data that point to a slowing expansion and modest Christmas retail season.
Employers added 112,000 jobs in November, the Labor Department said, well short of the 200,000 or more that many analysts expected. The unemployment rate was “essentially unchanged,” the department said, dropping to 5.4 percent from 5.5 percent.
“On pretty much every level, this was a weak report,” said Bill Cheney, chief economist of John Hancock Financial Services. Average hourly earnings rose only a penny to $15.83, and the typical manufacturing workweek fell for a third consecutive month.
“I think we have to reserve judgment about what this report means for the economy as a whole,” Hancock said in a written comment. “It's weak enough to raise concerns, but not weak enough to prove anything bad.”
Dr. Sung Won Sohn, chief economist of Wells Fargo, agreed that “it is too early to be pessimistic,” especially after a blowout month of employment gains in October that was boosted by hurricane cleanup and rebuilding in the Southeast.
The disappointing report is unlikely to deter Federal Reserve Chairman Alan Greenspan and his policy-making colleagues, who are expected to raise short-term interest rates another quarter-point when they hold their final scheduled meeting of the year Dec. 14.
That would bring the key overnight rate to 2.25 percent, compared with its historic low of 1 percent when the central bank began tightening credit in June. Most Fed watchers expect central bankers to raise rates again February 2, when they conclude their first meeting of 2005.
“It becomes questionable after that,” said Mary Ann Hurley, a bond trader at D.A. Davidson in Seattle. “This very weak jobs report today just calls into question how strong the economy really is, and whether the consumer can really continue to spend the way they have been spending.”
The weak November job growth, combined with a bumpy start to the Christmas season, have tempered expectations for retail sales.
Overall, chain store sales rose a modest 1.7 percent over November 2003 levels, according to data collected by the International Council of Shopping Centers. Michael Niemira, the trade group’s chief economist, predicted sales will accelerate in December. But he lowered his forecast for the two-month holiday season, saying chain stores on average will see sales rise a modest 2.5 to 3 percent.
In another potentially gloomy sign for retailers, consumer confidence fell unexpectedly for a fourth straight month, a business research group said this week.
“It’s not going to be a debt-fueled binge of spending by any means,” said Jeff Kleintop, chief investment strategist for PNC Advisors, referring to the Christmas season. “People just aren’t feeling that comfortable about the state of the economy or interest rates to spend that much.”
The economy has added a respectable 2 million jobs over the first 11 months of the year, or an average 185,000 a month, which is consistent with an economy growing at its long-term average rate of about 3.5 percent. Last year employment was virtually unchanged as the economy struggled to rebound from two years of steep job losses that continued even after a relatively mild recession.
But last year the economy also benefited from a tailwind provided by a large federal tax cut and the lowest interest rates, which triggered a wave of mortgage refinancing that left many homeowners with cash in their pockets. Those factors are missing this year, and many consumers, especially in lower income brackets, are struggling with persistently higher energy prices.
Nevertheless stock prices have been on a tear, reflecting relief after a relatively smooth election and a bounceback after a summer downturn, said Kleintop.
The broad S&P 500 is up 9 percent since late October, and the tech-heavy Nasdaq composite index has surged 13 percent in less than two months.
“You have to give the economy credit for making it through this year,” given the reduced stimulus, uncertainty over the election and the Iraq war, and sharp increase in oil prices, Kleintop said. “The economy hung in there, but next year I think it becomes even tougher sledding.”
He cautioned that the economy is vulnerable to a further decline in the value of the dollar and sharply higher interest rates, especially considering that economists expect slower growth next year and possibly in 2006.
“There is a reason we haven’t seen a dramatic run-up in employment,” said Douglas Duncan, chief economist of the Mortgage Bankers Association of America. “The effects of the tax cuts are waning, and consumers are facing an effective tax increase in energy. … We don’t see exactly where the degree of growth is going to come from that would push the (gross domestic product) faster than 3.2 or 3.5 percent.”
That would be “still a decent year,” but a slowdown from the projected 4 percent growth this year.
The White House noted that new jobs have been created for 15 straight months. “The economy is continuing to grow stronger with more than 2 million jobs created this year,” said spokesman Scott McClellan. “The president’s economic policies are working.”