Latest economic report suggests nation may be pulling out of recession

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Posted 2:57PM on Thursday, February 14, 2002

WASHINGTON - A key gauge of the number of Americans losing their jobs fell to its lowest level in six months, a sign that the country may be pulling out of a recession. The average number of newly laid off workers over the last four weeks sank to a seasonally adjusted 376,000 last week, the Labor Department reported Thursday. Because the department's four-week moving average of new claims smoothes out week-to-week fluctuations, economists consider it a good barometer of labor market activity. The latest jobless figures -- along with other recent economic data -- "say that the economy has turned a corner and is recovering. The only issue is the strength of that recovery," said economist Clifford Waldman of Waldman Associates. Still, economists warned that the country is in for a period of rising unemployment. Even if companies reduce the speed at which they lay off employees, the jobless rate will keep rising if companies are reluctant to hire workers back. Last week's decline pushed the moving average of new claims down to its lowest level since Aug. 11, when claims stood at 372,000. At that time, economists thought the economy, which had been stuck in a yearlong slump, was beginning to show tentative signs of a revival. But the economy was dealt a considerable setback by the Sept. 11 terrorist attacks, which jolted already fragile consumer confidence, disrupted business nationwide and caused layoffs to rocket. To prop up the economy, which slid into recession in March, the Federal Reserve slashed interest rates 11 times last year, pushing the prime lending rate -- a benchmark for many consumer and business loans -- down to its lowest level since late 1965. The Fed last month opted to leave interest rates unchanged and cited signs of a recovery as the reason. Many economists believe the Fed's aggressive rate-cutting action will pave the way for a solid rebound in the second half of this year. Recent economic reports suggest the worst may be over for the nation's manufacturers, which have been hardest hit by the economic slump. Manufacturing activity has edged higher and factories are seeing more demand for costly big-ticket goods. To cope with the slowdown, companies have sharply cut production and capital spending and let workers go. Another government report Thursday showed that businesses continue to make progress getting rid of excess inventories of unsold goods, which economists say must be done before production can be ramped up. The Commerce Department reported that business inventories fell by 0.4 percent in December, following a 1.2 percent decline the month before. It marked 11 months in a row in which inventories were reduced. While economists said that's a good thing, the process of inventory reduction actually subtracts from the gross domestic product, the broadest measure of the economy's health. GDP grew at a 0.2 percent rate in the fourth quarter, following a 1.3 percent rate of decline. But economists said aggressive inventory reduction seen in Thursday's report will likely lead to a downward revision in fourth-quarter GDP, making it flat or possibly negative. The government will release a revised fourth quarter GDP reading at the end of the month. Still, economists believe the economy in the current quarter is growing, with some projections in the range of around a 2 percent rate. Treasury Secretary Paul O'Neill, at a Senate hearing, said continued solid gains in productivity, a key ingredient of long-term economic vitality, puts the U.S. economy in a "different league" than the rest of the world and will keep the dollar strong. In the jobless report, new claims for unemployment benefits last week fell to 373,000, the lowest level since Jan. 19. Still, the nation's unemployment rate -- now at 5.6 percent -- is likely to rise in the coming months because companies, battered by the recession, may be reluctant to quickly hire back workers. Some economists predict the jobless rate will peak at anywhere from 6 percent to 6.5 percent by midyear and hold steady for awhile but won't begin falling until near year's end or the beginning of 2003. "I actually think businesses will start hiring some part-timers back fairly soon before employing full-time workers," said Sung Won Sohn, chief economist at Wells Fargo. "Companies will want to be sure that the economic recovery is here to stay."