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The Honolulu Advertiser
Posted on: Saturday, May 4, 2002

Jobless rate at 6 percent

Bloomberg News Service

WASHINGTON — The U.S. unemployment rate rose in April to 6 percent, the highest in 7 1/2 years, as people entered the workforce faster than the economy created jobs, government figures showed.

Payrolls grew by 43,000 after falling by 21,000 in March, the Labor Department said. Unemployment increased from 5.7 percent and was the highest since August 1994. The labor force grew by 565,000 to a record high 142.6 million people working or seeking jobs.

Stocks fell after the jobs report and another showing a slowdown in growth for service industries suggested the economy's recovery from recession will be gradual. Slower payroll growth may restrain incomes, which would keep consumer spending from accelerating.

"Companies are not going to want to take people on until they know the recovery is secure," said John Ryding, chief economist at Bear, Stearns & Co. in New York. "It really is going to take time."

The employment report comes four days before Federal Reserve policy makers meet and helps explain why analysts expect the central bank to leave the overnight bank lending rate at a 40-year low.

"This clearly signals the Fed it's too early to even think about raising rates," said James O'Sullivan, a senior economist at UBS Warburg LLC in Stamford, Connecticut. "The strength in GDP is all in productivity and not from the labor market" and that will help keep a lid on inflation.

Bigger workforce

The increase in the size of the workforce is one sign the recovery may be taking hold as people become more confident that they will be able to find a job, analysts said.

"When things slow down, the unemployment rate tends to understate the problems in the labor market because people just drop out of the labor force," said Scott Brown, an economist at Raymond James & Associates in St. Petersburg, Florida.

The Dow Jones Industrial Average fell 85 points, or 0.8 percent, to close at 10006.63. The Nasdaq Composite Index fell 32 points, or 1.9 percent, to close at 1613.03. U.S. Treasury securities rose. The government's 4 7/8 percent note maturing in February 2012 rose 1/4 point, pushing its yield down 3 basis points to 5.06 percent. A basis point is 0.01 percentage point.

Services index

The Institute for Supply Management's index of retail, financial services, construction and other non-manufacturing companies, fell in April to 55.3 from 57.3 in March. A level above 50 suggests growth, and the index has been above that for three straight months. Non-manufacturing industries make up about two- thirds of the economy.

The reports "suggest the overall recovery is still very fragile," said Christopher Low, chief economist at First Tennessee Bank in New York.

Analysts had expected an increase in payrolls of 55,000 after a previously reported gain of 58,000 in March. They had also projected that the unemployment rate would increase to 5.8 percent, based on the median of 60 forecasts in a Bloomberg News survey.

The U.S. economy grew at a 5.8 percent annual rate in the first quarter, the fastest in two years, led by consumer spending and a slowing in the pace of inventory reduction. Growth will probably slow to a 3.4 percent pace this quarter and stay close to that in the second half of the year, according to the latest consensus estimate of the Blue Chip Economic Indicators.

Manufacturers including General Motors Corp. responded to rising demand by increasing overtime hours to a 1 1/2-year high and businesses relied on temporary workers supplied by companies such as Kelly Services Inc.


Businesses, waiting for the recovery to pick up momentum, typically put off hiring full-time employees and instead ask existing employees to work more. Manufacturing overtime hours increased six minutes to 4.3 hours, the highest since November 2000.

General Motors and DaimlerChrysler AG's Chrysler unit scheduled overtime for next week at 22 North American assembly plants, a day after both automakers reported U.S. sales gains for April. Sales rose 13 percent from April of last year for General Motors and 2.8 percent for Chrysler. General Motors, the No. 1 automaker, boosted its second-quarter production plan by 300,000 vehicles.

That helps explain why the 19,000 decline in April factory employment was the smallest drop since October 2000, after eliminating 38,000 jobs the month before.

The available labor pool rose to 13.1 million from 12.6 million in March. That combines the number of unemployed job seekers and people not counting themselves as unemployed who nonetheless looked for work in the last 12 months and said they would take a job.

Jobless benefits

A new federal law passed in March allowing unemployed Americans to file for an additional 13 weeks of benefits may have caused the labor force to rise in April. "The extension of jobless benefits lures them back in the labor force," resulting in higher unemployment because they are still in search of a job, Brown said.

Companies that supply temporary and contract workers added 66,000 jobs, an early sign that the labor market is slowly improving. As the economy rebounds, Companies " respond first by looking toward temporary staffing," said Carl Camden, chief operating officer at Kelly Services, in an interview last month. "They're concerned about the fragility of the economy and are unwilling to make longer-term commitments to more traditional forms of staffing and more permanent forms of staffing."

Service-producing companies, which include retailers, transportation companies and government agencies, added 134,000 jobs after creating 62,000 a month before. Construction payrolls fell in April, reflecting declines in general building contractors and heavy construction, the government said.