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December 7, 2002

Jobless Rate Rose to 6% in November; 8-Year High


Defying recent evidence that the economy is starting to improve, the nation's job market deteriorated in November, lifting the unemployment rate to 6 percent from 5.7 percent in October, the government reported yesterday. That matched the highest rate this year and left joblessness at a level not seen since 1994.

The Labor Department said that payrolls at nonfarm businesses, adjusted to account for expected seasonal variations, dropped by 40,000, mainly as a result of steep job losses in manufacturing. After the recent decline in new unemployment claims, the consensus of forecasters had expected the economy to eke out a small gain in jobs last month.

That consensus, echoing the view of the Federal Reserve chairman, Alan Greenspan, also held that the economy was passing through a "soft spot" of trickling growth this fall but would pick up speed again early next year. Many experts still expect a moderate expansion in the economy next year, and some pointed to statistical quirks that exaggerated the current weakness. Nonetheless, the government's report of a further loss of jobs last month came as something of a reality check.

"This is a little bit disheartening," said David Wyss, chief economist at Standard & Poor's. "We were expecting manufacturing to be down — it just dropped more than we thought."

Mr. Wyss cited the dockworkers' labor dispute on the West Coast and competition from abroad for the worse-than-expected decline in payrolls in manufacturing. But he also noted that manufacturing, a reliable engine in recoveries until the 1980's, had become a much smaller presence in the job market.

"Manufacturing just isn't as important anymore," Mr. Wyss said. "Service jobs don't go down as much in recessions — that's the good news — but they don't come back as much in recoveries. We are in the world of milder recessions and slower rebounds."

The increase in joblessness touched men more than women but hit blacks and teenagers hardest of all. Though the Labor Department's estimates for young and minority workers are based on relatively small samples, said Harry J. Holzer, a professor of public policy at Georgetown University, they do conform to a long-running trend.

"You always expect a softening in the labor market to hit the marginal workers, who are the youngest and the least skilled," he said. "When you get to that point when you're recovering strongly, then they'll gain disproportionately, too."

That stage of the recovery may still be well down the road, however. "What we're seeing right now is very similar in some ways to the early 1990's, where you had a mild recession and a very mild recovery to the recession," Professor Holzer said. "Almost two years after the downturn, there was a big jump-up in unemployment. The recovery was too soft to absorb workers coming into the labor force."

If that chain of events repeats itself, the hundreds of thousands of jobless whose unemployment benefits have already expired or are about to run out may be in for a long, hard winter. John H. Makin, a resident scholar at the American Enterprise Institute in Washington, said he worried that the labor market's usual self-correcting mechanisms had given way to a dangerous quandary. "If too many people are laid off," he said, "then demand weakens and the basic problem is made worse."

That view was shared by Maurice Emsellem, director of public policy for the National Employment Law Project. He said he also hoped the successors to Paul H. O'Neill and Lawrence B. Lindsey, who resigned yesterday from their posts as treasury secretary and economic counselor to the president, would "support an extension of unemployment benefits as a proven economic tool to help stimulate the economy."

The further loss of jobs last month is bound to concern monetary policy makers at the Fed, who are scheduled to meet on Tuesday. But few economists expect the Fed, which lowered short-term interest rates by a larger-than-usual half a percentage point last month, to make another cut right away.

"I don't think the Fed is going to do anything on the basis of this report," Mr. Wyss said. All the same, he added, "I still think they have one rate cut left in them."

The rise in unemployment is also likely to give a sharp impetus to the Bush administration's plans to offer a big package of fiscal stimulus, which is expected to include tax cuts aimed at encouraging consumer spending and investment in the stock market.

Many analysts had been expecting a more positive jobs report, especially since first-time claims for unemployment benefits sank to a 19-month low last week. The department conducted its employment survey before it collected the most recent data on claims, though.

Moreover, all the department's figures included new adjustments for seasonal variations, which can be difficult to calibrate during the holiday season. For example, payrolls in retail trade registered an adjusted loss of 39,000 jobs in November even though retailers actually added hundreds of thousands of jobs last month. But because Thanksgiving and the beginning of the year-end shopping frenzy came just at the end of the month, retailers may have made the bulk of their hires too late for the Labor Department's survey. "There's a huge seasonal factor," Mr. Wyss said.

The potential for another slump in manufacturing could pose an especially big risk to the recovery, since it is the one sector that usually bounces back quickly.

"We've been through this cycle three times before," Mr. Makin said. In February, July and early October stock prices rose in anticipation of a revival in manufacturing but soon receded. "Every time it gets a little scarier," Mr. Makin said, because policy makers' actions along the way have apparently failed to jump-start the economy.

The fundamental problem in the economy, he asserted, is still a preponderance of unneeded capacity for production. "That's what always happens when you have a bubble," he said. As a result, "you can't make money if you don't cut costs, and in manufacturing two-thirds of everybody's costs are labor."

Hourly earnings in the private sector rose by 4 cents in November, the government reported, and easily outpaced inflation by gaining 2.9 percent for the year through November. Working hours did not change in either manufacturing or service fields over all, though carmakers demanded less time from their laborers than they had since August.

The chances that economic succor will come from abroad seem increasingly slim. Neither Japan nor Europe, traditional export markets for the United States and needed bolsters for a global recovery, promise to grow quickly in the coming year.

"We are heading for a period of lower growth," said Martin Hüfner, chief economist of HypoVereinsbank, Germany's second-biggest bank. He predicted that Europe would grow 0.7 percent for all of 2002 and just 1.3 percent in 2003.

Japan's meager expansion has relied on exports, which could also bode ill for the United States in the short run, Mr. Wyss said. "The Japanese are calling for a weaker yen to boost exports, because they're not running a big enough surplus."

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