Special report:
Your Job Full coverage

Employers downshift out of hire gear

Many economists forecasting a weak job gain in February also see only modest gains throughout 2007.

By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- A hot job market is getting awfully chilly very quickly.

After Labor Department readings showing that employers added an average of 187,000 jobs a month throughout 2006, coupled with the lowest unemployment rate since 2001, the February jobs report due Friday morning is likely to show 2007 is off to a much tougher start.

Economists surveyed by Briefing.com forecast payrolls grew by 100,000 in the month. If they're right, it would be the lowest rise since January 2005, lower than even the final estimates of jobs gains in the two months that followed Hurricane Katrina. There were also a disappointing 111,000 jobs added to payrolls in January.

The unemployment rate is forecast to stay at 4.6 percent, but a bit more than one out of five economists surveyed by Reuters are looking for the rate to rise to 4.7 percent, which would be a six-month high.

There are other readings suggesting a slowdown. Thursday the report on people filing for initial jobless claims showed the four-week moving average rose to the highest level since the week of Oct. 29, 2005, when the impact of Katrina was still being felt.

Wednesday an estimate on private sector job growth from payroll services firm ADP showed only 57,000 more jobs by nongovernmental employers in the month, the smallest gain in that reading since July 2003.

With corporate profits now expected to show much more modest gains than during the past five years, and business spending on new equipment and capital goods dropping sharply in the most recent readings, there are plenty of other signs of corporations getting more cautious. Former Federal Reserve Chairman Alan Greenspan pointed to slower corporate profit growth as a warning sign of a possible recession in recent comments.

Some economists say lower hiring numbers may well be another sign of overall economic weakness.

Joel Prakken, chairman of Macroeconomic Advisers, which developed the ADP monthly employment estimate, says that it is natural and perhaps overdue that hiring should slow down, given the below-trend economic growth that the U.S. economy started showing with the second quarter of 2006.

"Employment is a lagging indicator," he said. "People were expecting employment growth to slow well before now. I think you're just finally starting to see it."

Prakken said that private sector employers are likely to add about 1.5 million jobs in 2007, which still works out to a healthy 125,000-a-month gain for those employers. But he said that growth will be much slower, close to 100,000 a month or less, for the first half of the year.

David Wyss, chief economist for Standard & Poor's, said that he thinks that part of reason the February number might be weaker is cold weather, which could cut sharply into the already battered homebuilding sector. He said weak chain store sales in February also point to continued softness in hiring by retailers.

But Wyss said that the slowdown in hiring is natural, given that a tight labor market has helped to lift wages in the most recent readings, making it too expensive for employers to add as many new workers.

"You look at the compensation part of unit labor costs numbers, they're a little scary," said Wyss.

S&P is forecasting just below 1.5 million new U.S. jobs this year by both private and public sector employers, which would be down from the 2.2 million gain recorded in 2006.

"That's typical at this stage of the expansion," Wyss said.

But some economists are not as concerned about a slowdown in hiring. Rich Yamarone, director of economic research at Argus Research, has the most bearish estimate of February jobs growth any economist surveyed by Reuters, a gain of only 40,000. But he said most of that was a result of exceptionally cold weather during the week that the Labor Department surveys employers.

He said that other readings show employers will start to add jobs at a good clip again soon, including a nearly six-year high in the Labor Department's estimate of job openings, and the Conference Board's survey of consumers that found only 17.5 percent saying that jobs are tough to get right now, the lowest level saying that since August 2001.

"The bottom line is the economy is advancing at a desirable pace," said Yamarone. "Low inventory levels suggest the shelves and showrooms and warehouses are going to have to be replenished. They'll have to pick up the pace of hiring and refill those depleted inventories."

Found: 1 million jobs

New economic worry: Slower business spending Top of page