U.S. Payrolls Fall Sharply as Jobless Rate Rises to 5.8%
Kenneth N. Gilpin
New York Times
Friday 7 March 2003
Employers shed more jobs last month than at any time since the immediate aftermath of the Sept. 11 terrorist attacks, the Labor Department reported today.
But some economists said a confluence of apparently transitory factors - from the spike in energy prices to extremely inclement weather and uncertainties about a possible war with Iraq - cast doubt about just how much employment conditions have actually deteriorated.
Still, the employment numbers were an unwelcome surprise.
The nation's payrolls outside the farming sector fell by 308,000 in February, erasing gains recorded in January, which the Labor Department said today were bigger than originally estimated. The nation's unemployment rate ticked up to 5.8 percent, from 5.7 percent in January.
This was the biggest decline in payroll employment since November 2001, when employers cut 327,000 jobs.
The sharp drop came as a surprise. In advance of today's report, the consensus estimate among economists projected that payroll employment rose by 22,000 jobs last month.
The weak February employment report initially jolted the financial markets, sending stocks sharply lower and bond prices higher.
But stocks later regained their footing, in part because of unconfirmed reports that the United States might be closing in on Osama bin Laden. By midday in New York, the Dow Jones industrial average was trading modestly higher after it recovered from a early drop of more than 100 points.
Bond prices, meanwhile, held on to some of their early gains, and the yield on the Treasury's benchmark 10-year note slipped to 3.63 percent, from 3.65 percent late Thursday.
In light of what went on last month, a period that included very bad weather and a heightened terror alert, the employment picture may not be as bleak as what was reported.
"Special circumstances probably account for much of the decline, but not all of it," said David Resler, chief economist of Nomura Securities International. "The United States' economy was hit with a perfect storm in February. The fact that the unemployment rate only went up one-tenth of 1 percent may be an encouraging sign. But the economy, which was on the mend in December and January, definitely hit a wall in February.`
To support their contention that the job losses may prove transitory, Mr. Resler and other analysts pointed to the fact that the biggest job losses recorded last month were in the retail sector generally, and that stores, restaurants and bars accounted for most of that decline.
Over all, employment in the service sector declined by 86,000 jobs last month, the biggest decline since the fall of 2001.
A fierce winter storm buried much of the East Coast in snow in the middle of last month, just about the time the Labor Department was conducting is employment survey.
"The reality is that the situation is probably not as bad as it looks," said Paul Kasriel, director of economic research at the Northern Trust Company in Chicago. "But the underlying conditions aren't so great."
Mr. Kasriel noted that a number of other employment measures, including weekly initial claims for unemployment benefits, as well as employment surveys conducted by organizations like The Conference Board and Manpower Inc., showed that hiring patterns remained negative.
Economists say there is no question the economy remains mired in a jobless recovery. Since employment peaked in March 2001, nearly two million jobs have been lost.
In February, 8.5 million people were unemployed. About 1.9 million of those, or 22 percent of the total, have been out of work for 27 weeks or more.
Moreover, since energy prices are likely to remain high in the near term at least, it seems unlikely that employers in key sectors, like retailing, are poised to start hiring again. In addition, since Easter, which is the usual start of the spring selling season, falls so late this year, retailers will have another reasons to postpone hiring more people, economists said.
"The energy price run-up is probably going to affect retail employment in March, because people will be spending more of their money on gasoline and heating oil and not at the mall," Mr. Resler said.
"I think we are looking at six more weeks of weather-related effects here."
There were a few, isolated pockets of hiring strength. Jobs were added in the health care industry, but the increase was the lowest since 1999. And hiring also continued in mortgage banking, which has added 122,000 jobs since January 2001. The increase reflects a boom in mortgage refinancing and general strength in the housing market.
The Federal Reserve, which has cut short-term interest rates a dozen times since the beginning of last year, is largely responsible for continued good times in the housing industry.
Most economists do not expect the Fed to cut rates any further.
But James Glassman, senior economist at J.P. Morgan, said today's jobs report may spur the Fed to take action when policymakers meet in Washington two weeks from now.
"A surprise move may be necessary," Mr. Glassman said.
"It might be that we can weather this period fine, as Mr. Greenspan suggested last month," he added. "But you might need more insurance against the downside possibilities. A further rate cut won't do much about oil prices and the war, but it would help to create a base of improving psychology."
Alan Greenspan, the Federal Reserve's chairman, told Congress last month that the economy was suffering from continued geopolitical uncertainty. Until doubts related to issues related to Iraq and terrorism were at least partially resolved, it would be difficult to determine just how weak - or strong - the economy really is, Mr. Greenspan said.
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