Jury Still Out on Economy
By Rebecca Byrne
With two months to go before the election, the employment data are critical. Senator John Kerry has blasted Bush for his record on job creation, claiming that he is the first president since Herbert Hoover to see jobs decline over a four-year term. Some 966,000 net jobs have been shed since the start of 2001.
Still, the Bush administration has countered that the labor market is getting better, with 1.4 million jobs having been created since the start of the year.
While Friday's data suggest that job gains are continuing, some economists said the pace of growth remains anemic. Indeed, payrolls in August were below consensus estimates of 150,000, a number that some pundits say is needed to keep up with the growth in the labor force.
"It's certainly not a robust report," said Josh Feinman, chief economist at Deutsche Asset Management.
Although the unemployment rate fell last month, it did so largely because 152,000 people dropped out of the labor force. The jobless rate is measured through a survey of about 60,000 households, while payrolls are taken from a survey of about 400,000 businesses. Most economists, and Federal Reserve Chief Alan Greenspan, believe the payroll data are more accurate.
The household survey showed that 21,000 new jobs were created in August, after 629,000 jobs were reportedly added in July.
Ian Shepherdson, chief economist at High Frequency Economics, said the payroll number fell short of his 250,000 forecast "because core unadjusted payroll growth appears to have slowed dramatically." The headline number was lifted by a return to more normal seasonal adjustments after a couple of "deeply adverse numbers," he said.
"Overall, [it] keeps open the door to a Sept. 21 Fed hike but [is] not an unambiguously strong report," he said.
Sherry Cooper, chief economist at BMO Nesbitt Burns, agrees the Fed will likely hike rates later this month by a quarter point, as most investors expect. It would be the third rate hike this year.
Still, she expressed concern that the diffusion index of payroll gains fell to 54.5 in August from 54.9, "meaning the rebound was not as broad as it could have been."
Other economists said it was disappointing that the employment-to-population ratio edged down to 62.4% from 62.5%, and that the number of people working part time because of poor business conditions rose 152,000, or 5.7%.
The average duration of unemployment increased to 19 weeks from 18.6 in July and the share of the unemployed looking for work for 15 weeks or longer jumped to 36.2% from 35.3%.
David Rosenberg, chief economist at Merrill Lynch, said it is encouraging that job growth isn't deteriorating, but noted that employment in August was "still more than 300,000 positions below what the economics community believed would be the case just three months ago."
Over the past three months, job gains have averaged just 104,000 per month, some 65% below than the 295,000 average gain in the period from March to May.
"In other words, the labor market is still in a 'soft patch' even if conditions are not quite as bleak as they seemed before today's report," he said.
More than 60% of the jobs created last month were in government, health care/social services and administrative and waste services, according to Rosenberg. The services sector saw 108,000 job additions in August, while manufacturing added 22,000 and construction gained 15,000. Government hiring added 24,000 jobs while retail and telecom payrolls both shrank by 11,000.
The government noted that hurricane Charley had "no discernable" impact on the data.
Roger Altman, an economic advisor to Democratic presidential candidate John Kerry as well as former President Bill Clinton, said the jobs report was "pretty disappointing" and "guarantees that President Bush will be the first president since Herbert Hoover to see jobs decline in a four-year term."
For Bush to avoid that dubious distinction, the economy must add 241,500 jobs each month through December. Bush accepted the Republican nomination to run for a second term Thursday night and laid out a plan to create more jobs.
"To create jobs, my plan will encourage investment and expansion by restraining federal spending, reducing regulation and making tax relief permanent," he said. "To create jobs, we will make our country less dependent on foreign sources of energy. To create jobs, we will expand trade and level the playing field to sell American goods and services across the globe."
While stocks fell Friday, analysts said investors were mostly worried about Intel's (INTC:Nasdaq - news - research) decision to slash revenue guidance. The Dow fell 6 points, or 0.06%, to 10,284 and the Nasdaq was down 27 points, or 1.5%, at 1845.
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