Sun, Nov 07, 2004 page11

• US labor growth surpasses forecasts

  EMPLOYMENT The employment report for last month surprised Wall Street economists, although they said that it remains to be seen if the increased hiring will become a trend

  • NY TIMES NEWS SERVICE
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  The US labor market snapped out from its summer lull to add 337,000 new jobs last month, the biggest increase since March, the US Labor Department reported on Friday, raising hopes that businesses are overcoming years of intense caution and beginning to move aggressively to hire workers.

  Economists cautioned, however, that a one-month gain did not constitute a trend, since the economy has recorded encouraging spurts of job growth before that have just fizzled out in subsequent months.

  "This is the kind of job report you want to see at this stage of an economic recovery," said Jared Bernstein, an economist at the liberal-leaning Economic Policy Institute in Washington. "But we've been here before. Whether this will be a persistent trend is hard to know."

  The employment report surprised Wall Street economists, who had been expecting an increase about half as large. It also portrayed a much more vigorous labor market than that previously indicated over the past three months, as the Labor Department increased its earlier estimates of job growth in August and September by 113,000.

  On average, it said, the economy has been adding 225,000 jobs every month since August, substantially above the 150,000 needed to absorb new entrants into the labor force because of simple population growth.

  The unemployment rate inched up to 5.5 percent from 5.4 percent. But that increase was in large part a result of better employment prospects, which drew many previously discouraged unemployed workers back into the job market, reversing the labor force contraction of the previous two months.

  Economists, who had been baffled that the nation's relatively strong economic growth was not accompanied by better job numbers, said they were pleased.

  "We have been waiting for this for the better part of the last two or three quarters," said Robert Gay, a former economist at the Federal reserve who is global strategist at Commerzbank Securities.

  Manufacturers shed 5,000 jobs last month. But employment growth was broadly based across the service sector, with strong gains in the health and education sectors. The number of hours worked at private businesses remained unchanged, at 33.8 hours a week, but hourly wages increased 0.3 percent, to US$15.83.

  Some one-time factors and seasonal effects improved the employment situation. The cleanup and reconstruction of the hurricane-ravaged Southeast contributed to the 71,000 new jobs in construction. The back-to school season increased teacher employment. But even stripping out these one-time events, Gay estimated the underlying job growth was around 200,000.

  "That is not a number to be pooh-poohed," he said.

  Financial markets were jolted by the data, with stock prices moving higher. Bond prices declined as the emerging employment picture bolstered the view that the Federal Reserve would remain on the path of gradual monetary tightening, instead of any quick, sharp increases. The Fed is expected to raise short-term interest rates by a quarter point next Wednesday and again in December.

  With the presidential election over, the new job numbers were of little political consequence. Still, both parties grabbed them anyway. Democrats pointed out that there are still 371,000 fewer payroll jobs outside of the farming sector than there were when President George W. Bush took office nearly four years ago.

  But Treasury Secretary John Snow portrayed them as validation of the administration's tax-cutting strategy. "Roughly 2.4 million jobs have been created since August of 2003, with 2 million so far in 2004," he said in a statement.

  The question now is whether this pace of job growth is sustainable or whether businesses will revert to the reluctance to spend money that has characterized their behavior since the economy sank into recession in March 2001.
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