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Job growth still lacking in recovery

Friday’s disappointing employment report did little to derail forecasts of strong growth this year but gave fresh ammunition to critics who complain the Bush administration has failed to achieve its chief economic goal — job creation. By Martin Wolk
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Friday’s disappointing employment report did little to derail forecasts of strong growth this year but gave fresh ammunition to critics who complain the Bush administration has failed to achieve its chief economic goal — job creation.

The unemployment rate fell in December to 5.7 percent, its lowest level in nearly a year – but only because 309,000 people dropped out of the labor force, according to government data. Employers added a scant 1,000 jobs last month, a barely perceptible number in an economy of 130 million workers and far short of the 127,000 net new jobs analysts had been expecting. The Labor Department also revised away 51,000 jobs that had been reported in previous months.

“It’s a lousy report any way you look at it,” said David Wyss, chief economist at Standard & Poor’s Corp. “Employment has been up five months in a row, but all five months together add up to about one normal month of growth. We’re just not getting any kind of job growth despite the strength we’ve seen in GDP.”

The figures were especially disappointing considering the surge in gross domestic product that began in mid-2003 and more recent evidence of growth. Weekly claims for new unemployment benefits have fallen to their lowest level in three years, and surveys have led analysts to predict that businesses at last are boosting hiring after the long jobless recovery.

“The popular, man-in-the-street, ground-level view of the job market is that it still stinks,” said Bill Cheney, chief economist for John Hancock. “All of us forecasters were getting a bit complacent, and it turns out the man in the street was probably right.”

President Bush and others in the administration chose to focus on the improved unemployment rate, which has fallen from a peak of 6.4 percent in June.

Bush, speaking to a forum on small business, said economic indicators were “very strong” and called the drop in the unemployment rate a “positive sign.”

Labor Secretary Elaine Chao acknowledged that job creation last month was “less robust than forecasters projected” but said Bush’s economic policies are working. In a written statement, she called for congressional action on Bush’s “six-point plan” to boost employment by streamlining government regulations, limiting “excessive” lawsuits and extending tax breaks that are scheduled to expire.

Stock prices fell and bonds soared, sending market interest rates sharply lower. The weak demand for workers is keeping wage inflation in check and makes it even more likely that the Federal Reserve will not begin raising short-term  interest rates until next year, analysts said.

Critics of Bush’s economic policy, including his Democratic rivals for the presidency, were quick to pounce on the report as evidence that last year’s huge tax cut package had failed to achieve the White House’s stated goals for job growth, which called for 510,000 new jobs in 2003. The economy has lost 2.3 million jobs over the past three years including 74,000 jobs last year.

“With the recovery that we’re supposed to be in, adding 1,000 jobs is pathetic,” said Democratic hopeful Richard Gephardt, campaigning in New Hampshire. “It’s nothing short of pitiful and pathetic. This is truly a jobless recovery.”

"Democrats need issues, and this number today keeps the issue alive for them," said Greg Valliere, chief strategist for Schwab Washington Research Group. "It's probably Bush's greatest domestic vulnarability, that job growth just doesn’t pick up."

To be sure, nobody was predicting the economy was in any danger of reversing course, and some analysts suggested the latest payroll numbers may be understating the strength of the labor market, partly because of seasonal factors related to sluggish holiday hiring.

Retail employment fell by 38,000 last month, suggesting that the usual seasonal layoffs in January also will be lighter than typically seen in past years. That could result in a spike of new jobs next month, said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co.

“We’re not in a downward spiral or anything like that,” agreed Cheney. “I don’t think there’s anything else that would suggest the economy is heading down again. I don’t even think the job market is heading down again.”

But he said the failure of the economy to create jobs raises the risk that economic models, including those used by the White House, seriously underestimate the growth rate needed to boost employment. And he said the weak job growth is likely to shake confidence and make the economy more vulnerable to an external shock.

Crescenzi and some others said the payroll numbers are failing to capture a surge in self-employment and small-business hiring that show up in the separate household survey, which is the source of the unemployment rate.

But Wyss said such structural changes are not necessarily to the benefit of workers, because they imply less job security and fewer fringe benefits.

“You can look at the payrolls or the household survey and they will give the same message -- that this recovery is still a fairly slow-motion event in terms of job creation,” said Ed McKelvey, senior economist at Goldman Sachs. “Companies are being extraordinarily careful in how many people they put on the payrolls.”

John Silvia, chief economist at Wachovia Securities, said the weak job growth is mixed news for financial markets, suggesting consumer spending will be weaker than expected but profits could be stronger because of surprising productivity growth.

He said Democrats are justified in challenging President Bush to do more to generate job growth rather than simply cutting taxes and waiting for the business cycle to take over.

“From my personal perspective, you’ve turned the corner” from an economy that was losing jobs to one that is adding jobs, he said. “But it’s not like a NASCAR race where you’ve turned the corner and are accelerating out of the turn. You’ve turned the corner and you’re still going at the same mopey speed.”