Jobless rate takes unexpected fall

Posted 10:10AM on Sunday 3rd February 2002 ( 22 years ago )

WASHINGTON - Nearly 1 million discouraged people suspended their job searches in January, producing an unexpected drop in the nation's unemployment rate. Even though there are mounting signs of an economic recovery, economists believe the rate will rise again as cautious companies delay rehiring laid-off workers. The jobless rate dipped to 5.6 percent, a 0.2-percentage-point decrease from December, the Labor Department reported Friday. But that occurred because the labor force shrank by 924,000 - not because employment went up. As a result, the government's official unemployment figure, which counts only those actively looking for jobs, fell to 7.9 million in January. ``People were so discouraged that they just stopped looking for a job and left the labor force, which is not a positive thing, and that understated the unemployment rate,'' said Stuart Hoffman, chief economist at PNC Financial Services Group. ``It will take a while for the recovery to reach Main Street in the form of more jobs.'' Economists said the unemployment rate, considered a lagging economic indicator, will resume rising in the months ahead. They predicted it would climb as high as 6.5 percent by June, hold steady for a while and then start to fall near the end of this year or at the beginning of 2003 as the economic recovery gains momentum. The ailing economy, which fell into recession in March, has forced production cutbacks and thousands of layoffs and taken a big bite out of corporate profits. ``Companies are not going to commit to adding workers until their bottom lines stabilize,'' said Carl Tannenbaum, chief economist at LaSalle Bank/ABN AMRO. On Wall Street, stocks retreated as investors collected their wins from a two-day rally. The Dow Jones industrial average closed down 12.74 points at 9,907.26. Even discounting the statistical quirk which caused the jobless rate to fall, analysts said there were encouraging signs that the massive job losses seen after the Sept. 11 terror attacks are abating. A separate survey of businesses showed that they cut their payrolls by 89,000 workers in January, an improvement from the 311,000 employees that were cut, on average, in October, November and December. ``After losing hundreds of thousands of jobs each month for the past four months, losing only 89,000 jobs in January is actually good news even if it doesn't feel that great,'' said Bill Cheney, chief economist at John Hancock. ``The pace of job losses appears to be slowing.'' President Bush, who wants Congress to pass an economic stimulus plan, offered a cautious assessment of the employment report. ``There are some positive numbers but not enough positive numbers to satisfy me,'' he told reporters. Mark Zandi, chief economist for Economy.com, said that about 100,000 jobs need to be added to payrolls each month for the unemployment rate to start to decline on a sustained basis. Another report Friday suggested that the battered manufacturing sector, hardest hit by the recession, may be seeing better days ahead. The Institute for Supply Management said its index of business activity rose to 49.9 in January from 48.1 the month before. An index above 50 indicates manufacturing growth. While the employment report showed that factories lost 89,000 more jobs last month, it was the smallest decline since September. A third report from the Commerce Department showed that construction activity, which has held up well during the slump thanks to low interest rates, edged up 0.2 percent in December, powered by spending on condominiums and apartments. For all of 2001, construction spending rose 5.8 percent, following a 6.8 percent increase in 2000. While last year's performance marked the weakest showing for builders since 1995, it was still considered solid for a recession. In January, 54,000 construction jobs were cut, reflecting poor weather. Retailers, however, added 62,000 jobs in January, following losses of 241,000 in the last five months of 2001. Employment in the air transportation industry grew by 8,000 as the very light holiday hiring in air freight resulted in fewer layoffs than usual. But employment related to commercial airlines continued to fall. ``For people looking to find a good job, the climate is problematic,'' said Larry Mishel, economist with the Economic Policy Institute. ``People who tend to drop out of the work force - those with high school degrees or less and women- are people in the weakest positions of the labor market.''

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