Broad Job Losses Last Month Show Slump Is Lingering

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July 7, 2001

Broad Job Losses Last Month Show Slump Is Lingering

By LOUIS UCHITELLE

The nation's employers cut 114,000 jobs in June, mostly in manufacturing but in other sectors as well, the Labor Department said yesterday, throwing cold water on recent reports suggesting that the economy was beginning to recover.

Beyond manufacturing, the weak economy finally took its toll on the dynamic service sector, the great source of new jobs in the 1990's. Employment in the sector fell in June and for the second quarter as a whole — the first quarterly decline since 1958. The unemployment rate ticked up to 4.5 percent in June from 4.4 percent in May, but would have been even higher if so many people had not left the labor force in the spring, declining even to look for work.

"You cannot spin this report to make it sound positive; there is nothing positive about it," said William Dudley, director of domestic economic research at Goldman, Sachs & Company. "You have to look at other information to be optimistic. This report is very weak."

Stock prices plunged in response to the employment numbers and to new reports of weak corporate profits. The Dow Jones industrial average fell by 2.17 percent and Nasdaq by 3.65 percent.

Still, for all the gloom in the June employment report, which is the first broad assessment of the national economy last month, some forecasters insisted on optimism. They focused their attention not on the job numbers, but on hints that the yearlong slowdown may finally be ending. Auto sales, consumer spending in general, home construction, a slight pickup in factory orders, falling energy prices — all suggest to them that the economy is beginning to rebound, and by late summer or early fall job loss will turn to job creation.

"The darkest hour is just before the dawn," said Chris Varvares, president of Macroeconomic Advisers in St. Louis, "and we are hoping that we are at the darkest hour. There are reasons to expect a rebound."

Like many economists, Mr. Varvares is counting on stimulus from the Federal Reserve's six interest rate cuts this year and from the Bush administration's tax cuts, which authorize the mailing of millions of rebate checks this summer and fall. Sounding a hopeful note, Labor Secretary Elaine Chao declared in a statement that "the stable economy is poised to take off" once the checks begin to go out and, presumably, are spent.

Whatever happens next, the present is bleak for the nation's workers.

But there were a few gains in June. Retailers, for example, added 18,000 jobs. Construction jobs have been rising at a fairly healthy average of more than 15,000 a month this year — despite a slight drop in June — reflecting the strength in home building. While the federal government cut 6,000 jobs in June, once again shrinking its employment, local and state governments once again added jobs — a total of 30,000, mainly in education.

For the private sector alone, excluding government, the job loss in the second quarter was greater than in any single quarter since the last recession, in 1990-91.

Manufacturers, deep in recession, eliminated 113,000 jobs last month. Over the last year, more than 4 percent of the nation's manufacturing jobs have disappeared, reducing the total to 17.8 million. The June losses came mostly among makers of computers, semiconductors and machinery. But they were not alone. "In manufacturing, there were losses all over the place," said Thomas Nardone, chief of the division that compiles the monthly employment numbers at the Bureau of Labor Statistics.

The manufacturing hardship spread last month to wholesalers, who store and resell manufactured goods, and to the transportation sector, which includes the truck drivers who distribute merchandise. The two sectors lost 27,000 jobs. "These had been growing industries," Mr. Nardone said, "and now you not only have the losses, but you are not getting the growth they had contributed to the economy."

The vast service sector is also making this shift. These are the 41.05 million people, out of a work force of 132.38 million in June, who work at hotels, are employed by temporary help agencies, barber shops, beauty salons and cleaning establishments, who repair and service cars, work at hospitals and doctors' offices, day care centers and old age homes, and provide all sorts of other business services.

Their numbers had grown quarter after quarter and year after year since the second quarter of 1958, and then in the second quarter of this year, there was the first slight drop — 21,000 jobs, including 6,000 in June — after so many years of growth. These service workers accounted for most of the work force expansion through the boom years of the late 1990's. While the loss came mostly among temporary workers, whose numbers have been shrinking for months, there was no longer enough growth elsewhere to offset this loss.

The cutback in temporary workers has occurred mostly among those sent to factory jobs, said Jeffrey Joerres, chief executive of Manpower Inc., "but the proportion losing jobs in call centers, banks and brokerage firms is rising."

The shrinking job numbers, all seasonally adjusted, show up clearly in the monthly averages. In the first nine months of last year, employment in the private sector grew at an average of 167,000 jobs a month and then at a rate of 80,000 a month for the next six months, through March. Job growth then turned to job loss. Over the last three months, jobs disappeared at a rate of 117,000 a month on average.

Such rapid declines should be pushing the unemployment rate to nearly 5 percent, some economists say — and there were sharp increases in black and Hispanic unemployment. What prevents the overall number from rising more is the steady exodus from the labor force, which has declined to 141.4 million people working or seeking work in June from 142 million in January. Those leaving are mostly men and women who either left or lost jobs and decided against hunting for new work. Only those who actively seek work are counted by the Bureau of Labor Statistics as unemployed.

"This odd contraction of the labor force has kept the unemployment rate flat at around 4.5 percent for the last three months," said James W. Paulsen, the chief investment officer at Wells Capital Management in Minneapolis. "It understates true unemployment."

Average hourly earnings for production workers, totaling more than 75 million people, rose a mild 4 cents in June, to $14.29. The average had risen by the same amount in May and also in April, suggesting that employers are under no pressure from rising wages to raise prices. While employment fell in the second quarter, so did an index of hours worked for those with jobs, after two months of remaining flat.

The combination of a shrinking labor force in the second quarter and fewer hours suggested to some economists that economic growth may be close to zero in the just-ended quarter.

"What is happening is this," Mr. Dudley of Goldman said. "The profit squeeze is intense and business is reacting by trying to shed workers to control cost. And now the question is what is the consequences for consumer confidence and spending. So far they are holding up well, but we are not out of the woods."

-- (M@rket.trends), July 08, 2001


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