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Labor market finally in gear?
Even if January hiring isn't so great, economists say the job market may be strengthening at last.
February 3, 2005: 4:56 PM EST
By Chris Isidore, CNN/Money senior writer

NEW YORK (CNN/Money) - While the job market may be looking up for 2005, don't expect Friday's monthly payroll report to paint a clear picture of strength.

The numbers the Labor Department reports for January could be as confusing as they are encouraging.

Part of the problem is the department's Bureau of Labor Statistics will use the January report to restate payroll numbers for much of last year. Economists generally believe that some of the weaker job growth numbers reported during the course of the year could get a lift from this revision.

"We're likely to see large upward revision to earlier data, so it'll be harder for January to show a big gain," said Mark Vitner, economist with Wachovia Securities.

But Vitner is still forecasting U.S. payrolls will show a gain of 215,000 jobs for last month, slightly above the average of 200,000 from economists surveyed by Briefing.com. That would be up from 157,000 new jobs in December, and just the second month since last June that job growth topped 200,000.

The unemployment rate is forecast to stay at 5.4 percent.

Vitner and other economists say the January payroll numbers will get a boost from one-time factors. For example, retailers apparently hired fewer holiday workers than government number-crunchers had expected in November and December, meaning January could get a boost from fewer-than-expected layoffs by store chains.

Economists say rising gift card sales over Christmas also prompted some stores to keep seasonal hires on staff longer than in past years.

But even beyond those technical factors, many economists believe that a wide range of other reports point to an improving job market overall. Robert Brusca of FAO Economics, who often has payroll gain estimates below other forecasters, sees a relatively strong 225,000 new jobs for January.

"We have a lot of things suggesting that maybe things have improved," said Brusca, noting a drop in jobless claims, strong hiring trends in a survey of manufacturing executives and slower productivity growth. "I don't see any reason to go against the numbers."

Thursday's news that productivity growth fell to the lowest in four years, while not good news for the economy overall, could help the labor market as firms are forced to hire to keep up with demand.

"We are not likely to see faster employment growth until the current growth trend in productivity slows significantly," said Anthony Chan, senior economist at JPMorgan Fleming Asset Management. Productivity normally slows as an economic expansion matures, Chan noted, adding the current expansion is finally reaching that point.

"The reason productivity growth hasn't softened by now is that the current expansion has been fairly weak and really not been able to move out of its initial stages," he said. "For 2005, we remain hopeful that this will be the year where productivity slows further and employment growth continues to improve relative to what has been observed since the recession ended in November 2001."

Of course there's a risk in depending on what could be a negative -- such as slower productivity growth -- to lift hiring.

"If demand stays strong and productivity growth slows considerably, this could be a year that could be seen as heading towards traditional overheating of the labor market, with big employment gains," said Steven Wieting, senior economist with Citigroup. That in turn could prompt the Fed to pick up the pace of interest rate hikes, which could itself be a brake on hiring.

"Those two things could come into collision, and cause you to get faster hiring in the first part of the year, then have it catches up with you later," said Brusca.

But for now economists see a relatively positive job market to start 2005, even if it might be difficult to get a clean reading from Friday's report.  Top of page

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