Jobs report delivers a big warning
The nation's unemployment rate unexpectedly surged to 5 percent in December, making its steepest one-month increase since the economic tailspin of late 2001 and heightening concerns that the U.S. economy could be tottering toward outright recession.
While the government jobs report doesn't mean a recession is inevitable, it definitely represents "a major warning shot that the economy is in trouble," said Joel Naroff, head of Naroff Economic Advisers.
Friday's downbeat data was only the latest in a recent series of disappointing economic reports that have underscored the economy's increasing fragility. On Wall Street jittery investors responded with a sell-off that sent the Dow Jones industrial average plunging 256.5 points, or 1.96 percent. Through the first three days of 2008, the Dow is down by 3.5 percent.
Experts had been expecting U.S. employers to add 70,000 new workers to their payrolls last month, but even that lackluster performance couldn't be achieved. According to the Labor Department, only 18,000 new jobs were created nationwide.
December's dismal job production was the lowest level since August 2003, when the economy was still recovering from the 2001 recession.
The service sector managed to add a modest number of jobs last month, but those gains were almost completely offset by the combined 80,000 jobs shed by the construction and manufacturing segments.
Those two economically crucial segments are "hemorrhaging jobs at an increasing rate," as the financial drag caused by the housing sector's collapse ripples outward to affect consumer behavior and the broad economy, observed JPMorgan economist Haseeb Ahmed.
The jobless rate, which had been expected to inch up to 4.8 percent from November's 4.7 percent reading, instead climbed by three-tenths of a percentage point, to 5.0 percent.
For many observers, the surprise jump in unemployment was more alarming than the paltry job creation. Although the jobless rate is now at its highest level since November 2005, following Hurricane Katrina, it was the big one-month move, rather than the level itself, that drew the most attention.
"Historically," noted Northern Trust economist Asha Bangalore, "sharp increases in the unemployment rate are associated with recessions."
Single-month increases in unemployment as big as the December jump, echoed Nomura's David Resler, "occur only rarely and most often near business-cycle turning points."
For Economic Outlook Group economist Bernard Baumohl, December's "bleak" and "awful" jobs report indicates that "this business cycle is just about over," and "the only real question now is whether the economy will contract for one quarter or two." Baumohl expects unemployment to peak at 5.7 percent during this summer.
A rising jobless rate can become a potent political issue, and with the nation entering a presidential election year, President Bush went out of his way Friday to say that "this economy of ours is on a solid foundation." He added that "we can't take economic growth for granted," however, and urged Congress not to raise taxes.
Because it is so detailed, the Labor Department's monthly report is dense and frequently open to different interpretations. For one thing, the payroll data is compiled by a survey of employers, while the unemployment rate is determined by a survey of American households.
In December, both surveys were signaling weakness. Manufacturing employment contracted by 31,000 jobs last month, ending a year in which 212,000 manufacturing jobs disappeared. The sagging automotive sector accounted for 74,000 of the production jobs lost in 2007.
In the construction sector, 49,000 jobs were lost in December, and while bad weather may have amplified the loss, the Bureau of Labor Statistics pointed out that since peaking in September 2006, the housing sector's nose dive has caused the loss of a net 236,000 jobs in the construction sector.
Fields such as health care, government and food services saw payroll growth in December. But excluding the 31,000 jobs created by government entities, the private sector trimmed 13,000 workers in December.
The U.S. economy must generate about 100,000 new jobs monthly to accommodate population growth and hold the jobless rate steady. Over 2007, the Labor Department noted, employers added an average of 111,000 positions monthly, to create 1.38 million new jobs; that's down from the 189,000 monthly, or 2.26 million, created in 2006.
The latest figures make it more likely that the Federal Reserve will move to lower interest rates late this month. But the inflationary pressures caused by sky-high oil prices could complicate the Fed's efforts to stimulate the economy with lower rates.
The weak jobs report "sets the stage for another rate cut by the Fed to help forestall further weakening in the economy," said Economy.com's Sophia Koropeckyj, "if it isn't too late already."
----------
jpmiller@tribune.com
While the government jobs report doesn't mean a recession is inevitable, it definitely represents "a major warning shot that the economy is in trouble," said Joel Naroff, head of Naroff Economic Advisers.
Friday's downbeat data was only the latest in a recent series of disappointing economic reports that have underscored the economy's increasing fragility. On Wall Street jittery investors responded with a sell-off that sent the Dow Jones industrial average plunging 256.5 points, or 1.96 percent. Through the first three days of 2008, the Dow is down by 3.5 percent.
Experts had been expecting U.S. employers to add 70,000 new workers to their payrolls last month, but even that lackluster performance couldn't be achieved. According to the Labor Department, only 18,000 new jobs were created nationwide.
December's dismal job production was the lowest level since August 2003, when the economy was still recovering from the 2001 recession.
The service sector managed to add a modest number of jobs last month, but those gains were almost completely offset by the combined 80,000 jobs shed by the construction and manufacturing segments.
Those two economically crucial segments are "hemorrhaging jobs at an increasing rate," as the financial drag caused by the housing sector's collapse ripples outward to affect consumer behavior and the broad economy, observed JPMorgan economist Haseeb Ahmed.
The jobless rate, which had been expected to inch up to 4.8 percent from November's 4.7 percent reading, instead climbed by three-tenths of a percentage point, to 5.0 percent.
For many observers, the surprise jump in unemployment was more alarming than the paltry job creation. Although the jobless rate is now at its highest level since November 2005, following Hurricane Katrina, it was the big one-month move, rather than the level itself, that drew the most attention.
"Historically," noted Northern Trust economist Asha Bangalore, "sharp increases in the unemployment rate are associated with recessions."
Single-month increases in unemployment as big as the December jump, echoed Nomura's David Resler, "occur only rarely and most often near business-cycle turning points."
For Economic Outlook Group economist Bernard Baumohl, December's "bleak" and "awful" jobs report indicates that "this business cycle is just about over," and "the only real question now is whether the economy will contract for one quarter or two." Baumohl expects unemployment to peak at 5.7 percent during this summer.
A rising jobless rate can become a potent political issue, and with the nation entering a presidential election year, President Bush went out of his way Friday to say that "this economy of ours is on a solid foundation." He added that "we can't take economic growth for granted," however, and urged Congress not to raise taxes.
Because it is so detailed, the Labor Department's monthly report is dense and frequently open to different interpretations. For one thing, the payroll data is compiled by a survey of employers, while the unemployment rate is determined by a survey of American households.
In December, both surveys were signaling weakness. Manufacturing employment contracted by 31,000 jobs last month, ending a year in which 212,000 manufacturing jobs disappeared. The sagging automotive sector accounted for 74,000 of the production jobs lost in 2007.
In the construction sector, 49,000 jobs were lost in December, and while bad weather may have amplified the loss, the Bureau of Labor Statistics pointed out that since peaking in September 2006, the housing sector's nose dive has caused the loss of a net 236,000 jobs in the construction sector.
Fields such as health care, government and food services saw payroll growth in December. But excluding the 31,000 jobs created by government entities, the private sector trimmed 13,000 workers in December.
The U.S. economy must generate about 100,000 new jobs monthly to accommodate population growth and hold the jobless rate steady. Over 2007, the Labor Department noted, employers added an average of 111,000 positions monthly, to create 1.38 million new jobs; that's down from the 189,000 monthly, or 2.26 million, created in 2006.
The latest figures make it more likely that the Federal Reserve will move to lower interest rates late this month. But the inflationary pressures caused by sky-high oil prices could complicate the Fed's efforts to stimulate the economy with lower rates.
The weak jobs report "sets the stage for another rate cut by the Fed to help forestall further weakening in the economy," said Economy.com's Sophia Koropeckyj, "if it isn't too late already."
----------
jpmiller@tribune.com
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