Joblessness holds at 4.7%

Gain of 94,000 jobs last month does little to ease recession fears

December 08, 2007|By William Neikirk | William Neikirk,Chicago Tribune

WASHINGTON -- The economy added a modest 94,000 jobs last month, the government said yesterday in a mixed employment report that only slightly eased fears of a recession.

The national unemployment rate remained steady at 4.7 percent despite job losses in the construction, financial services and factory sectors. Private job creation was tepid at 60,000 as federal, state and local governments increased payrolls by 34,000.

Many economists said the report was reassuring in light of strong bearish sentiment expressed by many in the financial markets. But other analysts were unimpressed with the size of the rise and said job growth has been slowing for months.

The economy's problems have suddenly become a bigger issue in next year's elections, and they could be decisive if joblessness turns worse. But the Bush administration remained upbeat.

"We expect the economic expansion to continue, even with the challenges we face in the housing and credit markets," said Phillip Swagel, deputy assistant treasury secretary.

But uncertainty reigns on Wall Street and Main Street. Some analysts expect a full-blown recession lasting into 2009. Some expect a slowdown beginning soon, but with a bounce-back in the spring. Some believe that strong economic growth will continue into the foreseeable future.

"This recession will be one of the nasty ones," said Peter Boockvar, equity strategist at trading firm Miller Tabak + Co. Countered analyst Drew Matus of Lehman Brothers: "Over the next six months, the chances of a recession are very low."

Even with the boost in jobs, most economists said the Federal Reserve likely will cut interest rates when it meets Tuesday to deal with the prospect of economic weakness brought on by a housing-induced credit crunch. Most expect an interest-rate reduction of 0.25 percent, although it could be more.

On top of that, analysts said, the nation's central bank might take other steps to ease the credit crisis, possibly by sharply reducing the "discount rate" it charges financial institutions for direct borrowing from the Fed. Yet there is concern the central bank itself may be split over how to manage current economic events.

Fed Chairman Ben S. Bernanke has shown a greater willingness to cut interest rates sharply to deal with a credit crunch and a possible recession, even though current economic numbers look strong. Bernanke is facing his biggest economic test since taking over for Alan Greenspan.

"Everyone is looking for a significant slowdown," said Joel Naroff, a Holland, Pa., economic consultant, in predicting a Fed interest-rate decrease. "The data has yet to tell us that it has occurred."

David Resler, chief economist at Nomura Securities International, said he expected a slowdown to show itself in the current quarter and continue into the first quarter of next year. In one of those quarters, he said, the economy could decline. While leaving the door open for a recession, he said a rebound is likely in the spring.

"The economy is entering a danger zone," said Nigel Gault, economist at Boston-based Global Insight, a consulting firm, noting cautious consumers, the housing correction, potentially higher oil prices, credit tightening and maybe more inflation. Analysts at Credit Suisse said there is a 57 percent chance of a recession over the next six months.

The University of Michigan's consumer confidence index dropped to the lowest point in 15 years early this month, excluding the plunge after Hurricane Katrina hit in 2005, a statistic that does not bode well for retailers during the holidays.

Yet average hourly earnings rose to $17.63 in November, a 0.5 percent increase from October, the biggest monthly boost since June, according to yesterday's jobs report. Wages grew by 3.8 percent over the past 12 months, only slightly ahead of the inflation rate, so consumers did not gain much in real terms.

Carl Tannenbaum, chief economist at LaSalle Bank, called the jobs report "reassuring," but he added that if companies see profits under pressure and have a difficult time getting capital, "the picture in the job market will change for the future."

John Silva, chief economist at Wachovia Securities, said the jobs report lessened the chance of a recession and reduced the level of fear about economic prospects. But he added: "We're not out of the woods yet."

William Neikirk writes for the Chicago Tribune.

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