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Jobs still can't get in gear
Unemployment rate dips but payroll growth disappoints Wall Street for seventh time in eight months.
February 4, 2005: 3:07 PM EST
By Chris Isidore, CNN/Money senior writer
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NEW YORK (CNN/Money) - The job market started the new year in much the same way as it finished out the old -- posting disappointing job growth.

The Labor Department reported Friday that U.S. payrolls grew by 146,000 jobs in January, up from a revised 133,000 in December. But that was below the 200,000 new jobs economists were looking for, on average, according to a survey by Briefing.com.

January marked the seventh time in the last eight reports that economists had overestimated the number of jobs the economy created.

The unemployment rate fell to 5.2 percent from 5.4 in December, but that came mostly from a drop in the size of the labor force, not due to strong employment gains. Economists were looking for an unchanged reading.

"Some of the signals pointing to job market improvement simply did not bear fruit this month," said Robert Brusca of FAO-Economics, who had forecast a gain of 225,000 jobs. "The report makes the economy look even less like it is building a head of steam."

Some economists wondered whether the weaker-than-expected number is a sign of problems with the report rather than weakness in the labor market.

"It either means the economy is losing momentum or the (Bureau of Labor Statistics) is losing touch what's actually happening in the economy," said Mark Vitner, senior economist at Wachovia Securities. "Right now I don't know what side to come down on. My sense is that job growth has been stronger than reported."

Vitner said that if the report is accurate, it's likely a sign of the impact of higher energy prices on businesses' expansion plans, coupled with the continued caution that has been exhibited by employers since the recession ended in November 2001.

"In the '90s we had irrational exuberance. Now we have excessive caution. And that's the biggest headwind this economy is facing," said Vitner. "The lack of strong employment growth is one more reason for businesses to be cautious and can be a self-fulfilling prophesy."

The report also included the department's revisions to last year's job numbers, but the net effect of the changes left payroll growth for the year little changed -- up about 2.2 million jobs. Some economists had forecast that the revisions would lead to stronger gains for job growth last year.

The January report and the earlier revisions did give President Bush one morale victory -- he narrowly avoided becoming the first president since Herbert Hoover during the Great Depression to see a net loss of jobs during a term of office. The total number of people on payrolls in January was 132.6 million, compared to 132.5 million when he took office in January 2001, an increase of only 0.1 percent over the four years.

Even President Bush's father, who lost his bid for the second term greatly because of perceptions of a weak job market, saw the number of people on U.S. payrolls gain of 2.4 percent to just under 110 million during his term.

Nor was there much good news for workers on wages, which again grew below the pace of inflation.

Last year's annual job growth works out to about 181,000 new jobs a month on average.

But more than 40 percent of last year's gains came over three months in the spring. Since June, the average employment gain has slogged along at 150,000 a month, about what's needed to keep pace with population growth.

On Wall Street, stocks started flat but turned higher by mid-morning.

Treasury bond prices rallied, driving yields lower, as traders bet the sluggish job numbers would mean less inflationary pressure in the economy.

The report lessened the chance that the Federal Reserve would have to raise interest rates faster than its current measured pace to cool economic growth and ward off inflation.

Vitner said that he doesn't think this report will cause the Fed to pause on its path of interest rate hikes in any meeting coming up soon.

"They rely on a lot of other things," said Vitner. "When you look at economy in its totality, virtually everything is stronger than the employment data."

Manufacturing, construction jobs fall

In its report, the department said that manufacturing lost 25,000 jobs in the month, while construction fell 9,000.

Among sectors that showed the best gains were education and health services, which together added 35,000 jobs.

Retail showed an increase of 19,000 jobs, despite the end of the Christmas shopping season. Part of that may have been because retailers hung on to more seasonal staff due to increased sales of gift cards during the holiday season.

But the gain may also have come from government numbers crunchers overestimating December retail hiring, and thus having fewer layoffs of holiday workers than expected.

The report again showed that wage growth wasn't keeping up with inflation. The seasonally adjusted average hourly wage rose 3 cents, or 0.2 percent, to $15.88 an hour, in line with economists' consensus forecast.

During the last 12 months, average hourly wages have risen 2.6 percent, while average weekly wages are up 2.3 percent. Both gains are less than the 3.3 percent increase in overall consumer prices during 2004.  Top of page

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