What do you think? REH
January 11, 2003 With Companies Still Gloomy, Payrolls Shrink by Thousands By DANIEL ALTMAN The nation continued to bleed tens of thousands of jobs in December, the Labor Department reported yesterday, jolting forecasters who had expected a modest upturn in employment and suggesting that American business remains highly pessimistic about the economic future. Payrolls in nonfarm businesses, adjusted to account for normal seasonal variations, dropped by 101,000, and the unemployment rate stayed at 6 percent. The Labor Department also revised the number of jobs lost in November to 88,000 from 40,000. Though cornerstones of economic growth - like increasing productivity and financial stability - remain intact, companies have been unwilling to expand production or commit themselves to investments in new equipment that would support job creation. Retail spending and corporate profits have edged upward slightly, but a rush of new jobs still seems a long way off. Elaine L. Chao, the secretary of labor, said that higher earnings would have to come first. "The profit picture is not that strong, so that is not an encouragement to business owners to engage in permanent hiring," she said. "Employers are relying on overtime and short-term help." Analysts said the disappointing job figures were sure to turn up the heat under the debate in Congress about the best way to stimulate growth in the lagging economy. In a speech delivered after the Labor Department released its report, Vice President Dick Cheney lashed out at critics of the administration's $674 billion tax cut plan, saying that the White House's "jobs and growth" package would not only revive the economy but ultimately cut the budget deficit. Prominent Democrats, however, said the plan would do little to overcome the severe inertia in the labor market. "Most economists agree that the Bush plan is not a stimulus plan at all and will not have any real immediate impact on the economy," Nancy Pelosi, the House Democratic leader, said. "When is President Bush going to realize that job creation needs to be his top priority?" The roots of the problem may be too ephemeral to attack directly, however. According to business leaders and analysts, deep feelings of uncertainty among corporate executives and consumers alike are holding back an economic resurgence. "The cycle itself has been of such a different nature - what C.E.O.'s would complain of as a lack of visibility - that they don't have a clear mental model of how things might move forward," said Bill Martin, chief economist at UBS Global Asset Management. Prospects for growth are also being hurt, said Christopher J. Wolfe, United States equity strategist for J. P. Morgan Private Bank, as companies that overextended themselves in the last boom sell assets to pay off debt. Despite low interest rates, Mr. Martin added, many companies worry that taking on more debt to finance investment could lead to worse credit ratings, or even bankruptcy. The concerns would not be so great, except that businesses are hesitant to rely on further growth in consumers' willingness to spend. Bruised portfolios, terrorism and the risks associated with a war in Iraq are finally taking their toll, said John J. Castellani, president of the Business Roundtable, an association of top corporate executives. "The issue has not been the cost of capital," he said. "The issue has been demand for the products and the services." On Wednesday, the Federal Reserve reported that consumer credit had dropped for the first time in four years. The decline of $2.2 billion was the biggest since October 1991. "We are starting to see more adjustment by the consumer," Mr. Martin said, citing rising savings rates as a threat to demand in the short term. The continuing hemorrhage of jobs could add to consumers' fears, he said. Manufacturers of long-lasting goods made more heavy cuts last month, with 46,000 positions eliminated. Even if the economy returns to strong growth, those jobs may not return. "All the jobs that have been lost in the United States in manufacturing have essentially been recreated in China," Mr. Wolfe said. Restaurants and bars cut 63,000 jobs on a seasonally adjusted basis, signifying a holiday season of muted celebrations - at least in comparison with those of the recent past. Unemployment among teenagers fell slightly, to 16.1 percent from 16.8 percent, but joblessness among black workers grew to 11.5 percent, from 11 percent, the highest rate since May 1994. For the average American worker, wages and hours of work per week changed little in December. In the last two years, the government tried to help the economy mainly by propping up consumers through lower interest rates and cuts in income taxes. On Tuesday, the president proposed a further package of tax cuts worth $674 billion over 10 years, but it is unclear how much consumers' spending would respond to its biggest component, the abolition of the tax on dividends. "It is exceedingly difficult to parse," Mr. Wolfe said. "We're struggling with the net effect on consumption." His team has estimated that spending may rise by at most $30 billion as a result of the change, he said, "and it's probably a lot less than that, at least in the short run." Some economists gave the Democratic plan, announced on Monday, a better reception. It would inject $136 billion into the economy, mainly through aid to the states and through tax rebates that can affect spending quickly. "I agree with the Democratic plan much more than the president's," said William C. Dudley, chief United States economist at Goldman, Sachs. "But I would make the Democratic plan a little bigger and extend it into 2004." Other experts did see some potential for job creation from ending the taxation of dividends. Tracy G. Herrick, chief investment strategist at Jefferies & Company, an investment bank, said that some of the extra cash would flow to well-off small-business owners through their own portfolios. "Small businesses tend to be not investment-intensive," Mr. Herrick said. "They tend to be more people-intensive. The orders come from big companies, and jobs are created by the little companies." So far, however, the job market has offered little relief to people like Terry Gilliam, who had worked in the hotel industry in Philadelphia and has been looking for a job since July 2001. She is not eligible for the latest extension of unemployment benefits, signed this week by President Bush, because her original benefits ran out in September. About one million Americans are in the same predicament, according to the Center on Budget and Policy Priorities, a liberal research group in Washington. "I've been working over 20-something years and having that money taken out of my check," Ms. Gilliam said. "The unemployment fund has billions of dollars in it for this purpose. I don't understand it." Ms. Gilliam, who said that she had heard about the re-employment accounts that President Bush proposed to reward people looking for new jobs, said that she was already doing everything she could to find work. The number of jobless who have been looking for work for more than six months rose for the fourth month in a row, to 1,856,000 - the highest level since February 1993. "I'm looking for anything that I can apply my skills and knowledge to," Ms. Gilliam said from her home in Philadelphia, having returned hours earlier from a job interview. "If I get $3,000, I'll be using it to eat and pay my gas, electric, phone and rent." Experiences like Ms. Gilliam's notwithstanding, at least one forecaster saw the report on employment in a more positive light. "Most of the weakness is where we would have expected it, and it's not broadly based," Mr. Herrick, the Jefferies & Company strategist, said. "Things are right on schedule for moderate growth of 3 percent or 3.5 percent for the year as a whole, which wouldn't be that bad at all." _______________________________________________ Futurework mailing list [EMAIL PROTECTED] http://scribe.uwaterloo.ca/mailman/listinfo/futurework
