U.S. jobs picture is weak, but worst may be over
Wednesday September 5
By Joanne Morrison
WASHINGTON, Sept 5 (Reuters) - Friday's crucial August employment report is expected to show more weakness on the U.S. labor front even as the economy shows some signs it may be pulling out of its slump.
The job market, which had been relatively tight well into the economic slowdown, has eroded over the past few months as layoffs rose and corporate profits fell, and analysts say as a result job losses will continue over the next several months -- although some suggest the worst may be over.
Layoffs mounted in August, albeit at a slightly slower pace than in July, with U.S. firms unveiling 140,019 job cuts in the month, according to a report released on Wednesday by outplacement firm Challenger, Gray & Christmas. That was 145 percent higher than August of last year but 32 percent lower than the 204,975 cuts announced in July 2001.
``What's really going on is not that the economy is falling off a cliff or that we're in dire straits, it's just that businesses have stopped hiring and other businesses are still retrenching,'' said Kurt Karl, chief economist at Swiss Re in New York.
Wall Street analysts polled by Reuters forecast, on average, that Friday's report will show the unemployment rate inched up to 4.6 percent in August from 4.5 percent in July as the economy shed 33,000 jobs outside the farm sector.
And weakening in the job market will likely continue until corporate profits are shored up.
``The first thing that's got to happen is that corporate profits have to stabilize, and corporate earnings announcements are still pretty negative,'' said Mark Zandi, chief economist at Economy.Com in West Chester, Pa.
With the U.S. economy at a virtual standstill, the August jobs report, due out at 8:30 a.m. (1230 GMT) on Friday, will no doubt garner close attention from the Federal Reserve, which has left the door open for more interest rate cuts.
MORE RATE CUTS?
So far this year, the Fed has cut interest rates a total of 3 percentage points in seven moves to help pep up the ailing economy. Fed policymakers next meet in October and many analysts expect them to cut rates an additional quarter point.
``My belief is they will bow to the demands of the labor markets, the stock markets and politicians for another rate cut,'' said Ken Mayland of ClearView Economics in Pepper Pike, Ohio.
But even with a gloomy employment picture, the economy is showing some signs of life.
The National Association of Purchasing Management's latest monthly index posted its strongest gain in five years as new orders and factory production in August rose.
That closely watched index suggested the hard-hit industrial sector, which accounts for nearly one-sixth of the overall economy, is on the road to recovery.
``The manufacturing sector has been the weak link of this economy. The NAPM report would suggest that the softness in manufacturing is now beginning to ease and that should limit the spillover effect into the rest of the economy,'' said Lynn Reaser, chief economist with Bank of America Capital Management Group in St. Louis.
Because of this improvement, Reaser said job losses in coming months will not be as big as seen earlier.
``I think we have seen the worst,'' she said. ``The job losses will likely continue, but I think they will be fairly small.''
Jobless claims data from the Labor Department show that labor market weakening could be slowing, as the number of workers lining up for first-time jobless benefits has leveled off in recent weeks.
``It suggests to me that the weakness is not getting worse,'' said Lyle Gramley, consulting economist at the Mortgage Bankers Association and a former Fed governor.
Still, job cuts will likely continue through the fall and possibly into next year, even if the economy picks up, analysts said.
``The economy is, I believe, expanding now but employment could continue to soften for a little while longer,'' said Sung Won Sohn, chief economist with Wells Fargo & Co. in Minneapolis.
``Right now the rebound is already on, the hard evidence on that is not going to be apparent or perceived for a number of additional months,'' agreed ClearView's Mayland. |
