Poll: Unemployment to Stay Stubbornly High in 2004
By Wayne Cole
NEW YORK (Reuters) - Analysts see scant prospect of a meaningful fall in U.S. unemployment for months to come, despite tentative signs of a turn in the jobs market in recent days, a Reuters poll showed on Wednesday.
In a reversal of the last survey in July, analysts have boosted their forecasts for GDP (news - web sites) growth this year but trimmed them for 2004. Annual growth is now seen at 3.5 percent in 2003, edging up to 3.6 percent next year.
But such an improvement, while welcome, would not be enough to make an appreciable dent in unemployment. Median forecasts from the 25 economists surveyed are for the jobless rate to average 5.9 percent for all of 2004, a negligible change from the 6.1 percent expected in the current year.
The surprise 57,000 rise in payrolls for September offers some hope of a turnaround but a lot more is needed.
"It would take jobs growth of 200,000 to 300,000 a month for six months or more to make a dent in unemployment," said James Glassman, senior economist at J.P. Morgan.
He noted that as the labor market picked up it would tend to attract discouraged job seekers back into the labor force and thus keep the unemployment rate elevated.
"Still, it wouldn't be natural for employment to stay so sluggish for another whole year and, once momentum builds, we could see an improvement toward 5.5 percent (unemployment) by year end," he added.
If he is right, it would still make tense timing for President Bush (news - web sites) who goes to the polls in Noember next year.
HUNT FOR NEW JOBS
"Undoubtedly, there is still time for the situation to improve," note analysts at Goldman Sachs.
"However, if September's uptick in payrolls is not the sign of more to come, then President Bush is going to have great difficulty in winning re-election."
Jobs, or rather the lack of them, have become the hot topic in both financial markets and the halls of government.
Even normally circumspect officials at the Federal Reserve (news - web sites) have begun to wonder out loud whether the surge of job losses in the last couple of years was due to structural changes which means many will never be coming back.
"I suspect that a large part of these net job losses -- particularly in manufacturing, airlines and telecommunications -- are permanent and will not be reversed as the economy gains steam. Instead, new jobs will need to be created in other sectors of the economy to replace them," was the cautious conclusion of Fed Governor Susan Bies last week.
KNEE-DEEP IN DEFICITS
While the recent slide in the dollar has stirred hopes that the United States' huge current account deficit may eventually be restrained, the process is set to be painfully slow.
Analysts see no improvement in the current account deficit this year or next, instead predicting the shortfall will yawn to a massive $614 billion in 2004, or just shy of six percent of gross domestic product, from $570 billion in 2003.
At the same time the U.S. government budget deficit is expected to balloon to a record $500 billion in fiscal 2004.
Taken together, these shortfalls mean the United States will be borrowing over $1 trillion next year, or more than the entire GDP of Canada. That will place an ever-greater strain on both domestic and foreign savings, perhaps leading to more downward pressure on the dollar and upward pressure on interest rates.
In contrast, dollar weakness is not expected to generate inflation.
The core consumer price index (news - web sites), which strips out volatile food and energy costs, is seen slowing to an annual 1.5 percent by the end of 2004, unchanged from a projected 1.5 percent this year.
That is a big step down from the 1.9 percent forecast back in July and suggests deflation will remain a threat, albeit a remote one.
The muted outlook for inflation should mean the Federal Reserve will be in no rush to raise interest rates from their current 45-year lows of 1.00 percent.
Most analysts do not expect the first hike until the third quarter of next year and see Fed funds at 1.50 percent by year-end. From there, however, the pace of tightening is expected to accelerate markedly.
By the close of the third quarter of 2005 Fed funds will stand at 3.25 percent, say analysts.
The only jobs Bush creates are those which damage the environment. But we pay dearly for those jobs. |
