U.S. Economy Added Paltry 1,000 Jobs in December

The Philadelphia Inquirer

January 10, 2004

Jan. 10--The government said yesterday that the U.S. economy added an anemic 1,000 jobs in December -- a tiny fraction of the 150,000 that Wall Street and economists had expected.

It was a distressingly weak performance for an economy that experts believed was reaching full recovery as the nation enters the 2004 presidential election.

But department stores and other retailers failed to hire a large contingent of holiday workers in December -- as they typically do -- while employers in other parts of the economy, including factories, hotels and mortgage banking, laid off workers, the Labor Department said.

The nation's unemployment rate fell 0.2 percentage points to 5.7 percent in December. Economists said this was either a fluke or a further sign of weakness, because 300,000 Americans simply stopped looking for work and brought the unemployment rate down.

Experts said the jobs report showed that massive efforts to create employment in 2003 -- including low interest rates, huge federal tax cuts, a declining value of the dollar, and higher government spending -- have yet to produce a sustained job-market recovery.

Stocks fell sharply yesterday with the Dow Jones industrial average declining 133.6 points, or 1.3 percent, to 10,458.89. Stock prices have risen substantially in recent months, reflecting strong corporate profits and the anticipation of an economic recovery.

"It's remarkably disappointing. It's almost unthinkable," Mark Vitner, senior economist with Wachovia Corp., said of the mere 1,000-job gain in the United States in December. "The viability of the recovery does come into question."

Because health-insurance premiums, for example, are increasing so rapidly, "the costs of hiring a worker are still rising faster than revenue for a large part of the economy, which for many employers it does not make sense to add workers," he said.

Lynn Reaser, chief economist with Banc of America Capital Management, said: "It was a very disappointing report because other signs in the economy showed that we were on an improving trend."

Other trends include rising corporate profits and continued worker productivity gains.

In some cases, companies also are investing in labor-saving technology. Rohm & Haas Co., the Philadelphia chemical company, said in mid-December that it would eliminate 550 jobs because of its investment in a new computer system.

Mark Zandi, chief economist with Economy.com in West Chester, an economics-consulting firm, said: "There is nothing redeeming in this report today -- nothing... . It just was a very disconcerting, disappointing report. The job market remains the economy's dark spot."

Most industries maintained employment levels or reduced them. A few -- construction, health care and temporary hiring -- reported modest job gains.

Temporary-help firms added 194,000 jobs -- the eighth straight month of growth. Experts look at temporary help as a leading indicator of improved full-time employment, reasoning that companies first add temporary workers to fill an immediate need and then add full timers when they are comfortable that their business will support the extra cost.

But some are questioning the validity of the measure, since there has not been much permanent job growth despite the persistent rise in temporary jobs.

"It could also mean that companies are converting permanent jobs to temporary jobs," said Lee Price, director of research for the Economic Policy Institute, a liberal economic think tank.

What might be happening is that many companies are now using temporary employment firms to accomplish work, such as payroll or accounting, that used to be done in-house, said Ron Bird, economist for the more conservative Economic Policy Foundation.

Even when the economy improves, it is unlikely that businesses will reinstitute those departments, Bird said.

Retail stores reported a solid holiday season -- with sales increasing by 4.2 percent. But this came without new jobs -- retail jobs in December fell by 38,000 positions from November's level, the Labor Department said.

Part of this decline might be attributed to the fact that retail stores made employees work longer hours, thus reducing the need for hires.

"Stores and businesses are tightening up the ship," said Beth Margulis, director of customer service workforce initiatives at the Jewish Employment and Vocational Services in King of Prussia. Hiring and training employees is expensive, so stores try to increase employees' hours instead of adding extra workers, she said.

By Bob Fernandez and Jane M. Von Bergen.

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