Softening Jobs Situation Signals Tough Times Loom
Thursday May 3, 1:55 pm Eastern Time
By Joanne Morrison
<<WASHINGTON (Reuters) - More Americans are lining up for first-time unemployment benefits and job cut announcements rose further as the world's richest economy stumbles, signaling tough times could be ahead for several months.
First-time applications for state unemployment benefits rose to 421,000 for the week ended April 28, reaching the highest level in more than five years, the government reported on Thursday.
At the same time, a separate survey by the international outplacement firm Challenger, Gray & Christmas showed that the number corporate layoffs during April hit a record.
``I think that we are going to see more bad news on the economic front than good news probably over most of the summer,'' said David Resler, chief economist with Nomura Securities International in New York. ``I don't see what it is that is quickly turning things around.''
The weakness in the labor market has only reinforced a conviction that the Federal Reserve will continue cutting rates as it tries to reignite the sputtering economic flame.
With signs mounting that the job market is growing ever softer, all eyes will turn to Friday's April employment survey, the broadest measure of the U.S. jobs situation. Analysts polled by Reuters expect unemployment to climb to 4.4 percent with anemic employment growth of 5,000 jobs versus March's 4.3 percent jobless rate and loss of 86,000 jobs.
Most of the weakness in the labor market has been seen in the manufacturing sector, which has been operating at a recessionary pace for several months. But slowdowns are now creeping into the key service sector, analysts say.
NAPM SURVEY
The National Association of Purchasing Management's (NAPM) latest non-manufacturing survey showed that the services sector will weaken in the coming months, causing more job cuts in an area of the economy which has so far skirted a deep slowdown.
NAPM recorded its lowest reading on the monthly non-manufacturing report since it launched the survey in July 1997, a drop in the index to 47.1 in April from 50.3 seen in March. The employment segment of the survey dropped to 46.7 percent from 49.4 percent in March -- the second month in a row the survey has suggested job losses in the service sector.
``It's a very worrisome development that the decline in manufacturing has now spread to the non-manufacturing sector in a fairly noticeable way,'' Resler added.
In early afternoon trading, blue chip stocks on the Dow Jones Industrial Average fell more than 1 percent while the NASDAQ, comprised mostly of technology stocks, dropped more than 3 percent.
FOUR-WEEK MOVING AVERAGE RISES
A longer-term barometer of labor trends, the four-week moving average of initial jobless claims, has also risen.
The Labor Department's most recent data showed the average shooting up to the highest level since the United States was recovering from a brief recession in the early 1990s.
This four-week average for last week's claims, which is considered a more reliable barometer of employment conditions because it irons out weekly fluctuations, shot up for the fifth straight week to 404,500 from 395,250 in the prior week.
``We know the economy is certainly soft and not at the end of its troubles. With that being the backdrop, the labor market indicators are going to be weakening,'' said Ken Mayland of ClearView Economics in Cleveland.
Many analysts see initial jobless claims passing the 400,000 mark, a level seen as a sign of a weakening in the labor market, as a worrisome sign. But the U.S. work force has grown dramatically over the last decade, making comparisons to claims levels seen during the early 1990s less relevant.
``With the growth in the labor force over the last ten years, the exact comparison is deceiving,'' said Lynn Reaser, chief economist with Banc of America Capital Management Inc. in St. Louis.
Still, the latest data clearly point to weakened labor conditions, which will likely show up in Friday's crucial monthly unemployment report. Scant job creation is expected to be seen in the April data.
``The indication is that the labor markets are softening and probably should be expected to soften further. We're not at the end of the troubles that we're going to see for the cycle,'' Mayland said.
CORPORATE LAYOFF ANNOUNCEMENTS RISE
According to Challenger's latest survey, 165,564 new job cuts were announced in April compared with 162,867 in March. During the first four months of this year, companies have announced 572,370 job cuts, which is well above the 179,144 announced during the same time last year.
``We all know that there are a lot of layoffs going on and so the question is how much hiring is going on,'' said Bill Cheney, Chief Economist at John Hancock Financial Services in Boston.
Most economists feel the softer labor market is a sure sign of further interest rate cuts from the Fed, which has already lowered borrowing costs four times this year.
``I think this has been a harder landing than everyone wanted to see,'' Reaser said.
Fed policymakers are scheduled to meet on May 15, and some observers are expecting as much as a half-point cut in rates following a weak April jobs report. So far this year the Fed has cut interest rates four times, or a total of 2 percentage points.>> |
