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News > Economy
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Unemployment jumps to 6%
Jobless rate surges to cyclical high as employers shed another 48,000 jobs from non-farm payrolls.
May 2, 2003: 4:33 PM EDT
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - The unemployment rate rose to 6 percent in April as businesses cut thousands of jobs for the third straight month, the government said Friday, extending the worst stretch for the U.S. labor market since World War II.

Unemployment rose from 5.8 percent in March, the Labor Department said, matching its December 2002 peak, which was the highest level since August 1994. Unemployed workers now total 8.8 million, up from 8.4 million in March.

Payrolls shrank by 48,000 outside the farm sector after falling by a revised 124,000 jobs in March. In the past three months, 523,000 jobs have been cut, the worst such stretch since the months after the Sept. 11 attacks.

"'3-peats' never happen outside of recessions," said Merrill Lynch chief U.S. economist David Rosenberg. "We now have such a case."

Economists, on average, expected unemployment to rise to 5.9 percent and 53,000 jobs to be lost, according to a Reuters poll -- though several economists expected job losses of 100,000 or more.

"I'm glad it wasn't worse," said Putnam Investments economist David Kelly, who noted that every economic expansion since World War II has begun in a period of high unemployment. "I wouldn't say the job market is out of intensive care yet, but if we see a pickup in retail sales and a pickup in business spending in the next few months, the effects [of recent weak economic growth] should be done by the third quarter."

But some analysts worried that the big jump in the unemployment rate -- caused, in part, by a 680,000-person surge in the labor force -- could weaken consumer sentiment and undercut consumer wage growth. Consumer spending makes up more than two-thirds of the total economy.

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"The question must be asked as to what psychological impact there may be from this oft-cited [number] ... upon consumer sentiment," said Rosenberg of Merrill Lynch. "The unemployment rate and inflation are the most important determinants of consumer sentiment."

And some of the details in the report were ominous, most notably a steep drop in the length of the average workweek, which fell to 34 hours from 34.3 in March, showing businesses put the brakes on activity in the month.

"The decline in hours means the economy will be limping along once again," said Anthony Chan, chief economist at Banc One Investment Advisors. "Every tenth of an hour lost has the same economic impact as losing 200,000 jobs."

Fed unlikely to move

On Wall Street, the report did not hurt stock prices, which jumped as investors looked beyond the weak numbers and bet a broader economic recovery would come soon. Treasury bond prices fell.

Traders likely shared the optimism of many economists, who believe that, as the uncertainties surrounding the war with Iraq fade from memory, economic activity will recover enough to inspire greater production and hiring later this year.

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The U.S. jobless rate climbed to 6 percent in April from March's 5.8 percent rate. CNNfn's Tim O'Brien reports from Washington.

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"Production and employment always follow demand, and we've seen a pickup in demand," said Mickey Levy, chief economist at Bank of America. "I think this will translate into a better labor market in May or June. I know the employment reports have been disappointing lately, but be patient."

The report also seemed unlikely to have much of an impact on Federal Reserve policy-makers, who are scheduled to meet Tuesday to discuss interest rates, which they manipulate to boost or slow economic growth. Most analysts expect them to leave rates alone.

After cutting its key interest rate to a 40-year low in November 2002, the Fed has been content to sit on its hands, saying the economic disruption caused by the run-up to war has made judging the underlying strength of the economy impossible.

In congressional testimony this week, Fed Chairman Alan Greenspan indicated he was aware that businesses were still too cautious to start hiring, but said he hoped their confidence would return later this year, indicating he was willing to wait a little longer before taking policy action.

"With the war over, energy prices declining, and fiscal and monetary stimulus already pumped into the system, I'm with Alan Greenspan in expecting that the economy now will begin to perk up," said Bill Cheney, chief economist of John Hancock Financial Services Inc. in Boston.

The tax-cut debate rages on

Some economists doubt further Fed rate-cutting would do much good anyway. Stimulus isn't the problem, these analysts say -- as Cheney pointed out, the economy is awash in stimulus, with super-low interest rates, a declining dollar making U.S. goods more competitive overseas, low inventories, high productivity, and a slowly improving stock market.

The real problem, according to some analysts, is that demand is weak, particularly in the corporate sector. President Bush has proposed tax cuts of at least $550 billion, which he claims will stimulate business investment and hiring. Congress will likely pass some tax-cut plan, but is still debating its size and shape, including whether or not to eliminate some individual dividend taxes.

"That 6 percent number should say loud and clear to members of both political parties in the United States Congress: We need robust tax relief so our fellow citizens can find a job," Bush said in a speech Friday.

Many economists, however, doubt cutting taxes will do much to stimulate job growth in the short term and are calling for measures that could have a more immediate effect, such as giving money to cash-strapped state governments or extending unemployment benefits.

"The labor market is crying for help. The government could write a check from Treasury to every man, woman and child right now for $400," said Lawrence Mishel, labor economist and president of the Economic Policy Institute, a think tank that has long opposed Bush's tax plan. "All this bickering about the shape of a dividend tax cut is a distraction from how to get consumers spending right now."

Longest stretch of pain since WWII

Friday's report means the year-to-year net change in private payrolls has been negative for 22 straight months, extending the longest stretch of labor-market pain since 1944-46. Private, non-farm payrolls are now 2.6 million jobs lower than they were in March 2001, when a recession began.

Payrolls in goods-producing industries fell 73,000 in April, led by a 95,000 jobs cut from the manufacturing sector.

Service-producing payrolls grew by 25,000, led by a 32,000-job surge in government hiring. Retailers cut 10,000 jobs. Other service industries, such as tourism, data processing and personnel supply, added 21,000 jobs.

Average hourly wages rose 0.1 percent to $15.11 an hour from $15.09 in March. In a weak labor market, wage growth is a critical support to consumer spending, which makes up more than two-thirds of the nation's economy.

Along with the drop in the overall average work week, manufacturing hours fell 0.3 hour to 40.5, and overtime fell 0.1 hour to 3.9 hours.

The average length of unemployment rose to 19.6 weeks, the highest since January 1984.  Top of page




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