Rising jobless rate not all bad

Nationwide surge to 6% shows seekers returning to market, economists say

May 04, 2002|By Bill Atkinson | Bill Atkinson,SUN STAFF

Despite signs that the economy is strengthening, the nation's unemployment rate surged to 6 percent in April, its highest level in nearly eight years, the Labor Department said yesterday.

But the increase from 5.7 percent in March neither surprised nor worried economists, who blamed it on a flood of new job seekers.

"People are coming out of the woodwork because of improving economic conditions," said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis. "They are doing that because they are hearing about ... more job opportunities."

Thomas F. Carpenter, chief economist at ASB Capital Management in Washington, said there were 500,000 to 600,000 more people looking for work in April, and the "huge infusion ... will cause the unemployment rate to go up.

"Even at 6 percent ... we are in a very, very low unemployment rate," Carpenter said.

The last time unemployment was at 6 percent was August 1994. The unemployment rate hit a 30-year low of 3.9 percent in October 2000.

Despite April's higher rate, economists were relatively upbeat over the report's results because they showed that the economy is mending.

One encouraging sign was that the economy added 43,000 jobs in April, a small number but a positive trend, they said. It was the first time that U.S. companies had added jobs in nine months.

"It is a decent sign; it is a long way from a normal growth rate," said James Glassman, senior U.S. economist at J.P. Morgan Chase & Co. in New York. "At a minimum, what you want to see is trend-like growth which is in the 150,000-per-month" range.

Another positive, according to analysts, was that only 19,000 jobs were lost in the manufacturing sector during the month. From March 2001 to January 2002, the sector lost an average of 119,000 jobs a month, according to the report.

"Jobs were produced, albeit at a low rate. What is important is that we have almost reached the end of the job losses in manufacturing," Carpenter said. "My sense is that in the May report we will see ... that the manufacturing sector has reached bottom."

More overtime

Besides the good news in manufacturing, companies increased the amount of overtime hours to 4.3 hours per worker in April, up from 4.2 hours in March.

"We are following the usual and predictable processes in stages by which the labor market turns around and moves from recession to stagnation to growth," Carpenter said.

Economists said they expect the unemployment rate to rise to about 6.5 percent by midyear. But they noted that the rate is a lagging indicator as to how the economy is actually performing.

"Obviously, we want the jobless rate to fall," Sohn said. "It [the rate] eventually goes up even after the economy troughs. We are in a transition period and, hopefully, sometime by midyear we will see not only more jobs but also a declining unemployment rate."

Markets unfazed

The stock market took the news in stride.

The Dow Jones industrial average, which is made up of 30 blue-chip stocks, slid 85.24 points to close at 10,006.63. The Standard & Poor's 500 stock index, which gives a broad measure of the market's performance, fell 11.13 points to 1,073.43, and the technology-heavy Nasdaq composite index slipped 31.79 points to 1,613.03.

"I don't think today's report had all that much bearing on the stock market," Glassman said. "I don't know why the market would react negatively to this. It is the kind of report that says the [Federal Reserve] can sit on the sidelines longer" and not raise interest rates.

Many economists don't expect the Fed to raise interest rates - now at 40-year lows - until later in the year because the economy is still weak but has emerged from recession. The Fed's next meeting is scheduled for Tuesday.

The recession, declared in November by the National Bureau of Economic Research, snapped an unprecedented 10-year expansion.

Some experts were worried that the Fed would raise interest rates after the gross domestic product - the country's total output of goods and services - grew at 5.8 percent in the first quarter.

No hurry on rates

But with yesterday's rising unemployment numbers, "you draw the conclusion that the Fed is not going to be in any hurry to raise rates," said Stephen Stanley, an senior market economist at Greenwich Capital Markets Inc. in Greenwich, Conn.

"Whatever chances there were that it was going to be sooner have been taken off the table now," Stanley said. "The Fed is going to need to see definite signs that the recovery is sustainable. I for one still feel like we will be getting those signs over the next several months."

Sohn, the Wells Fargo economist, said he expects the economy to grow in the 3 percent to 3.5 percent range this quarter, spurred by government and consumer spending.

"Those are really the key items," he said. "I think the economy is growing at a modest pace, which is good. The economic recovery is unfolding actually a lot better than I anticipated six months ago. I am not disappointed that growth is slowing and the jobless rate is rising. This is part of the process."

David Wyss, chief economist at Standard & Poor's in New York, sees the country's growth rate in the 3 percent to 3.5 percent range for the rest of the year.

He calls himself "guardedly" optimistic about the economy's prospects this year.

"There is obviously a lot of risk out there," Wyss said. "The Middle East can still blow up in our face. But other than that, as one of my colleagues called it, we had a `recessionette,' and you shouldn't expect a real recovery. What doesn't go down, can't go up."

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