169,000 jobs added in August

U.S. unemployment rate fell to 4-year low of 4.9%, but data is discounted

September 03, 2005|By James P. Miller | James P. Miller,CHICAGO TRIBUNE

CHICAGO - In a bit of good economic news that drew only limited attention, the Labor Department said yesterday that U.S. employers added a net 169,000 jobs in August, and the nation's unemployment rate declined to a four-year low of 4.9 percent.

Yesterday's report of 169,000 new jobs for August landed short of the 190,000 that economists had been forecasting. But many elements were positive: The percentage of people in the work force rose 0.1 percentage point, to 66.2 percent, its highest level in two years.

"Most measures of the labor market indicate that the degree of slack is slowly disappearing," Banc Investment Group economist Steven Wood said.

The solid jobs report, which normally would have drawn close scrutiny from Wall Street economy-watchers, was treated as irrelevant, ancient history yesterday because the nation's economic landscape has been so altered by Hurricane Katrina.

"Employment markets were solid on the eve of destruction," Wachovia economist John Silvia said.

Joel Naroff, of Naroff Economic Advisors, had similar sentiments. "That only tells us where we were before Katrina hit. The September numbers will be dreadful," he said.

Although the magnitude of Katrina's blow to the nation's economy - and labor force - has yet to come into focus, experts figure it's a near certainty that the U.S. unemployment rate has already climbed back above August's 4.9 percent and will move higher.

"Next month, payrolls will plunge," economist Ian Shepherdson of High Frequency Economics predicted. "Our guess is negative 500,000."

Estimates of the number of Gulf Coast workers made idle by Katrina run from 500,000 to as many as 1 million, though that blow to the nation's payroll will be partially offset by the normal creation of new jobs elsewhere in the country.

In predicting unemployment levels, "all bets are off" in the wake of Katrina, said Sophia Koropeckyj, of the consulting firm Economy.com, though some experts were saying unemployment in the hurricane region could reach 25 percent.

Hundreds of thousands of people who work in the offices, stores and restaurants of New Orleans are jobless, as are employees of the storm-damaged granaries and chemical plants along the Mississippi River.

Most of those people are likely to return to work in weeks or months, so the temporarily displaced workers' stay on the rolls of the unemployed will be of limited economic significance. In addition, the reconstruction effort is expected to create a substantial but hard-to-predict number of new jobs.

But Katrina has also sent damaging ripples into the broader economy, and that collateral damage may prove the more lasting.

"As destructive as past storms have been, they didn't leave an imprint on the U.S. business cycle," noted JPMorgan economist Bruce Kasman. But Katrina "should prove to be the exception to the rule," he said, noting damage to the nation's already strained-to-the-limit petroleum refining capacity, which sent gasoline prices skyward around much of the country.

The initial impact of higher gas prices acts as a tax on consumers, reducing the amount of money households have to spend on groceries, appliances, theater tickets and other purchases. If fuel prices remain at high levels long enough, the costs cascade through the economy, dealing a second blow to consumers by forcing up the price of everything from food to manufactured goods.

Koropeckyj said high post-hurricane gas prices "will constrain growth in the remainder of the country as employers who have been reluctant to take on new workers due to their rising costs will shy further away."

The U.S. economy has already been pinched this year by a big run-up in gas prices, which had hit a plateau not long before Katrina drove prices still higher.

Katrina's ultimate impact "is impossible to determine," said Brian Wesbury, of Claymore Advisors in Lisle, Ill. However, he added, "history suggests that the U.S. economy will recover quickly and any pause in Fed rate hikes now would force the Fed to hike rates further and faster in 2006."

The Chicago Tribune is a Tribune Publishing newspaper.

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