Job growth may be slow even if recovery has begun

Bloomberg News Service

CLEVELAND — An Eaton Corp. official is confident the second- biggest U.S. maker of hydraulic equipment will wait until 2003 before it hires more workers.

"We think we're sized correctly," said Alexander M. Cutler, the CEO who slashed Eaton's 50-nation work force by about 15 percent, to 49,000, after orders for industrial controls, truck transmissions and other products began declining 18 months ago.

Cutler's assessment helps explain why many economists predict the U.S. unemployment rate will rise by midyear to above 6 percent and hover there for most of 2002 even if the economy begins recovering. They say the recovery will be too weak for many companies to expand their staffs.

"Companies are going to be very hesitant to hire new workers over the next 12 months because they don't want to jump the gun before they see solid growth," said Donald Straszheim, a Westwood, Calif., economic consultant.

Statistics published during the past two weeks have generated optimism among some analysts that a recovery is near. Preliminary figures showed the economy grew at a 0.2 percent annual rate during the fourth quarter of 2001 instead of declining at a 1 percent pace as expected.

But that may not point to a surge in job creation. Analysts say the economy must grow at an annual rate of 3 percent or more for several months before job growth can rebound. Growth must be fast enough to absorb a projected 1 percent increase in the labor force and a 2 percent rise in productivity, the amount employees produce in an hour of work.

The nonpartisan Congressional Budget Office predicts the economy will grow by 0.8 percent for all of 2002.