Saturday, January 6, 2001
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Posted on: Saturday, January 6, 2001

Job growth stalls nationwide


By Martin Crutsinger
AP Economics Writer

WASHINGTON - Job growth nationwide fell to the slowest pace in eight years with auto plants and other factories shedding thousands of workers in December. While the unemployment rate remained frozen at 4 percent, analysts predicted sharply higher numbers in the months ahead as the weak economy forces more layoffs.

The Labor Department's unemployment report yesterday mirrored other statistics that have depicted an economy quickly losing altitude, raising concerns that the record 10-year-stretch of uninterrupted growth could be in jeopardy.

Private payrolls edged up by just 49,000 during the month, ending a quarter in which monthly job creation in the private sector averaged just 84,000, the poorest showing since 1992 and just half the rate in the first nine months of the year.

"We have an economy that has slowed dramatically, and manufacturing has sunk into a recession," said Robert Dederick, economic consultant for Northern Trust Co. in Chicago. "The question is whether the Federal Reserve will be able to keep the overall economy from heading into a downward spiral."

The weak jobs report added to the gloom on Wall Street, as the Dow Jones industrial average fell 250.40 points to close at 10,662.01.

The Dow's slide over the past two days erased most of the 299-point gain triggered on Wednesday when the Federal Reserve, acknowledging the economic slowdown, announced a surprise half-point cut in interest rates, its biggest reduction in more than eight years.

President-elect Bush seized on the Fed's move as evidence that "bold" action was needed to ward off a recession. He urged Congress to move quickly on his $1.3 trillion tax cut to spur growth.

The Clinton administration, however, continued to insist that yesterday's unemployment report showed nothing more than a supercharged economy slowing to a more sustainable rate of growth.

"We leave the incoming administration with a very solid employment picture - 22.5 million new jobs and a tremendously low unemployment rate," said presidential press secretary Jake Siewert. "They have a lot of leverage to deal with problem spots as they crop up."

The current slowdown is the result of an effort by the Federal Reserve from June 1999 to May 2000 to boost interest rates enough to slow torrid growth to relieve inflation pressures.

Analysts said the Fed's sudden action this week was an admission that the central bank was worried it may have overdone the credit tightening.

Manufacturing plants lost 62,000 jobs in December with 8,000 of those layoffs occurring at auto factories, which are struggling with high inventories and slumping sales.

"Manufacturers were hit hard last month and will continue to be under pressure," warned Jerry Jasinowski, president of the National Association of Manufacturers. "We are in the midst of a sharp slowdown in activity."

Private analysts, however, said they still believed there was time for the Federal Reserve to prevent a full-blown recession if it continues to cut rates aggressively.

"The Fed will do whatever it takes to keep the U.S. economy from going down the tubes," said Bruce Steinberg, chief economist at Merrill Lynch in New York.

Still, the forecast growth of around 3 percent or less this year would likely push unemployment up by a full percentage point to 5 percent by December 2001, adding an extra 1 million people to the jobless rolls.

"The clouds on the horizon are becoming harder to ignore," said David Wyss, economist at Standard & Poor's. "The slowdown is going to be a little bumpier than we had hoped."

In another report yesterday, new-home sales fell by 2.2 percent in November to the lowest level in three months, a decline blamed on stock market volatility, higher energy prices and falling consumer confidence.

Even with the slowdown in the last three months of the year, the unemployment rate for all of 2000 averaged 4 percent, the best showing since a 3.5 percent rate in 1969.

One of the reasons the Federal Reserve gave for its rate reduction this week was the absence of inflationary pressure. That view was supported in Friday's report which showed average hourly earnings, a key gauge of inflation, rose 0.4 percent in December, down from 0.6 percent in November.

The big loss in manufacturing jobs brought losses in that sector to 180,000 for the year. In addition to the layoffs, factories cut back sharply in December on the number of hours worked with the factory workweek dropping by 0.8 hours, the biggest decline in nearly five years.

Construction lost 13,000 jobs last month, the second consecutive monthly decline, reflecting extreme weather conditions in both November and December.

Retailing, which suffered through disappointing Christmas sales, managed to add a modest 8,000 jobs during the month. But looking forward, a number of the country's biggest names, from Sears to Office Depot, have recently announced thousands of layoffs as they shut unprofitable stores. Montgomery Ward will shut its doors completely after 128 years in business.

The increase of 56,000 government jobs in December, representing a bounce back from a weak November, contributed more than half of the total payroll growth of 105,000 for the month.

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