Broad Rise in Hiring Last Month
February 4, 2006
By LOUIS UCHITELLE
In one of the strongest job reports since the start of the recovery in late 2001, the government reported yesterday that the unemployment rate fell to 4.7 percent, its lowest level in more than four years. The nation's employers hired workers in nearly every industry.
The widespread hiring added 193,000 jobs to the work force, well short of what forecasters had expected. But upward revisions for November and December brought average monthly job growth for the three months to a hefty 229,000. The cumulative effect has been a sharp drop in the unemployment rate — to a level approaching what some economists define as full employment.
'This latest report is unmistakable evidence of an improving economy,' said Nigel Gault, chief domestic economist for Global Insights. 'What you have to look for is evidence that the fourth-quarter slowdown in economic growth will continue. And this jobs report is evidence that just the opposite is happening.'
For months, the unemployment rate had hovered at 5 percent, dropping occasionally to 4.9 percent, as it did in December. The plunge to 4.7 percent broke the pattern — bringing the unemployment rate to its lowest level since July 2001, when the boom of the late 1990's began to unwind.
The January report, compiled by the Bureau of Labor Statistics, raised the likelihood that the Federal Reserve's policy makers will continue their quarter-point rate increases beyond their March meeting, the first one at which the new Fed chairman, Benjamin S. Bernanke, will preside. The new expectation is that the Fed will almost certainly add another quarter-point to short-term interest rates not only in March but also in May.
Stock prices fell yesterday and bond prices rose, which often happens when the expectation of rising rates makes bonds seem the more attractive investment.
The Bush administration welcomed the jobs news, but cautiously. 'We're actually in a sweet spot in the economy right now,' John W. Snow, the Treasury secretary, said in an interview with the Bloomberg news agency. He argued that the wages of ordinary workers could continue to rise, as they did last month, without forcing companies to push up prices. That can happen, he said, because of rising productivity, which means workers are paying for their own raises by increasing their output.
His remarks seemed to be aimed at least in part at Mr. Bernanke and at Wall Street. Many forecasters argue that an unemployment rate of 4.7 percent gives workers the leverage to bargain for raises that may prompt their employers to then increase prices. The Fed, in expectation of a higher inflation rate, could respond with rate increases that might stifle the expansion.
'We are exhausting the pool of the unemployed and of otherwise available workers,' said Jan Hatzius, chief domestic economist at Goldman Sachs.
The new jobs report was not all good news. Over the last year job growth averaged 189,000 a month, not counting the impact of Hurricane Katrina. In the early 1990's recovery, by comparison, the work force was growing at 303,000 a month in the fourth year.
In past recoveries, the average number of hours worked in a week rose along with employment; this time, employment is rising but hours have been stuck at just under 33.8 a week, on average, for more than three years. And unemployment among blacks, which fell more last month than for any other group, was nevertheless 8.9 percent — more than double the 4.1 percent for white men and women.
Still, by the standards of the current recovery, the employment report offered plenty of good news, and this despite the bureau's annual benchmark revisions, which resulted in a slight lowering of job numbers reported last year.
The most striking bit of good news was the way in which the unemployment rate dropped in January. Most of the earlier declines in the current recovery have come about in part because many jobless have left the labor force rather than actively hunt for work, which people must do to be listed as unemployed.
This time, the unemployment rate fell but not because people left the labor force. The so-called labor force participation rate held steady at 66 percent, suggesting that enough job openings exist to draw people into the hunt for work. The percentage of long-term unemployed — that is, those out of work six months or longer — fell to 16.3 percent from 18.2 percent in December.
'As jobs become more available, people are no longer finding themselves stuck as long in unemployment,' said Jared Bernstein, a senior economist at the labor-oriented Economic Policy Institute.
Employers added workers in virtually every sector of the economy except government and retailing. Construction led the list, with 46,000 new jobs, a result of unseasonably warm weather as well as continued strength in the housing market.
Manufacturers, who had been shedding jobs until late last summer, added 7,000 last month, continuing a gradual upward climb. Most of the gains, however, came in services. Education and health services produced 39,000 new jobs, followed by business services, particularly temporary workers; financial services; and leisure and hospitality, which includes restaurants and bars.
'Consumers don't have to go to restaurants and bars,' Mr. Gault said, 'and when they do, that reflects consumer confidence.'
The jobs report tracks the wages of production workers, white collar and blue collar, below the rank of supervisor. They represent 80 percent of the nation's workers. Their average wage rose 7 cents, to $16.41 an hour.
That brought the 12-month increase in wages to 3.3 percent, not enough to match the annual 3.4 percent rise in the Consumer Price Index through December. Despite this shortfall in purchasing power, most forecasters expect growth in the first quarter to surge to an annual rate of more than 4 percent from 1.1 percent in the fourth quarter.
Rising auto sales, business spending on new equipment, relatively low interest rates despite the Fed rate increases, and a still healthy housing market are all listed by the forecasters as likely to contribute to the growth surge.
'The first quarter will be great,' Mr. Gault said. 'The second quarter won't be as good. Maybe we are talking 3 percent growth for that quarter.'
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