The Numbers Don't Lie
By Rebecca Thomas
December 7, 2001
SORRY FOLKS, BUT the recession is still alive and kicking.
The Labor Department reported Friday that the ranks of the unemployed swelled in November by a more-than-forecast 0.3% to a six-year high of 5.7%, with nonfarm businesses slashing 331,000 jobs on top of the 468,000 eliminated in October. Since March, when employment peaked and the recession officially began, 1.2 million positions have been eliminated.
The news dashed hopes that the economic recovery was at hand. "We have no reason to believe the economy's stabilizing," says Pierre Ellis, managing director and senior international economist at Decision Economics, a consultancy. "Things are still falling apart." Bruce Steinberg of Merrill Lynch, one of Wall Street's most bullish economists at one time, echoed that sentiment. "Those who mistakenly believed that the recession was nearly over just got a rude wake-up call."
The data came in far weaker than Wall Street had expected. A consensus of economists had forecast a jobless rate of 5.6% and a 200,000 job drop in nonfarm payrolls. The 1.8-point increase in the unemployment rate since October 2000 is already worse than the 1.4-point increase registered during the 1990-91 recession, but significantly smaller than the four-point jump experienced during the 1975 and 1982 contractions.
Friday's jobs report threw a wet towel on the recently embraced notion that the economy has already hit bottom. The Dow Jones Industrial Average dropped 49.68 points to 10,049.46; the Nasdaq Composite shed 33.20 to 2021.07; and the S&P 500 index declined 8.83 to 1158.27. "The markets got overexcited," says Lehman Brothers economist Joe Abate. "The economy is doing better than in the aftermath of Sept. 11, but it's premature to say the recovery is here in earnest."
The White House responded to the numbers with a call for action. "Today's unemployment numbers are troubling," said President Bush in a statement. "And they underscore that we must act to ensure America's economic security." Still, Congress remains as divided as ever over what to include in an economic stimulus package. Republican leaders offered Wednesday to support spending about $25 billion in additional unemployment insurance and health-care benefits for the jobless, but Democratic leaders dismissed the proposal as woefully inadequate.
Given the logjam on Capitol Hill, the role of reviving the economy falls to the Federal Reserve once again. Friday's jobs data virtually guarantee that Fed policy makers will cut interest rates for the 11th time this year at their scheduled meeting next Tuesday. Most economists believe the central bank will lower the benchmark federal-funds rate by a quarter-point, to 1.75%. "I think they'll definitely cut," says John Fox, co-leader of fixed-income at Boston-based investment firm Gannett Welsh & Kotler. "It's a no-brainer."
As was the case in October, job losses were widespread last month. Factory employment dropped for the 16th consecutive month, falling by another 163,000 and bringing the total decline since July 2000 to 1.4 million. Service industries — which include temporary workers, retailers, government workers, travel-related businesses and the like — cut jobs for a third straight month, letting go 164,000 workers in November on top of the 327,000 dismissed in the previous month. |
