Job market still lags growth

By William Sluis
Chicago Tribune

Thanks to a tide of liquidity generated by ultralow interest rates and a flood of tax refunds, economists believe growth is riding the crest, at an annual rate of nearly 5 percent.

With activity building such a head of steam, the same analysts have extrapolated additions to payrolls for 2004 of at least 2 million new positions. So far, unfortunately, that isn't happening.

Looking at the past 12 months, growth of payrolls has amounted to a paltry 122,000 jobs, a tiny portion of what would be expected at this stage of a typical recovery. Payrolls grew by a disappointing 21,000 in February.

That brings us to Friday's March employment report. Economist Sung Won Sohn is looking for joblessness for the month to hold steady at 5.6 percent and thinks employers added 130,000 positions.

"The good news here is that manufacturers are no longer a drag on the economy. They have stopped reducing staffs, after four years in which factories have been hemorrhaging jobs," said Sohn, of Wells Fargo & Co. in Minneapolis.

Elsewhere, he said, retailers stand to benefit from the tax refunds, which will total about $65 billion for the current tax season. That is helping boost employment in retail outlets as money pours in to the stores.

"The question is whether some of that effect is being nullified by the high cost of gasoline," Sohn said. "As the second half of the year gets under way, the tax refunds will no longer be a factor."

Even so, he expects growth for the rest of 2004 to continue at a 4 percent to 5 percent clip.

The so-so behavior of the job market has been blamed for an end-of-winter case of the blahs among many Americans.

Watch for a nice jump, however, in tomorrow's report of March consumer confidence from the Conference Board, a business research group.

Analysts were surprised in Friday's final report of confidence as measured by the University of Michigan. It showed an uptick to 95.8, well above the 93.7 that many economists were expecting.

Since the Madrid terrorist bombings, most of the experts were expecting a pullback in optimism. One said the Michigan attitude measure should be seen as "a significant and pleasant surprise."

Faced with near-record fuel prices, pushing near $2.50 a gallon at some locations on the West Coast, the auto industry is understandably nervous about what buyers may think heading into the peak summer driving season.

So far, though, there are few signs that Americans are looking for gasoline-pinching minicars or giving up their guzzling SUVs.

Economists at FleetBoston Financial expect Thursday's report on March sales of cars and light trucks to show a mild uptick, to an annual rate of 16.6 million units, from 16.4 million a month earlier. Their reasoning: With interest rates on car loans still at rock-bottom levels, don't look for any detour into the slow lane by Detroit.

Also Thursday, the Institute for Supply Management will offer its March survey of the nation's purchasing managers. The sensitive barometer of manufacturing is expected to show a drop, to 60.4 from a superheated 61.4 a month earlier. Anything above 50 is seen as evidence that the factory sector is growing.

The stock market is awaiting reports of first-quarter corporate profits, rolling out within two weeks. By all indications, earnings growth will be in double digits, year over year. But investors remain uncommonly wary with the start of the second quarter, on April Fool's Day, looming.

Part of the problem is that Wall Street analysts correctly predicted the current earnings boom. By now, profit improvements are becoming old hat. In fact, with stock valuations already steep, investors are wondering what comes next. Some see little upside potential.

In the meantime, three sessions remain in the first quarter. There are few signs that investors will have anything to show for the period other than slight losses.