Posted on: Monday, May 3, 2004

Slight job gains not likely to move Fed

By William Sluis
Chicago Tribune

After a long winter's slumber, the job market awoke with a start in March, generating new positions, a number not seen in about four years.

Before the applause grows more thunderous, however, economists will see the April employment report, due Friday.

Skepticism about the labor market inevitably will be revived unless the report provides evidence that payrolls are indeed continuing to grow.

Economist Lynn Reaser expects another healthy advance of about 180,000 positions, "suggesting that the turnaround in the job market may be gradual, but it is real."

Workers are seeing the effects of strong retail sales, a continued boom in home construction and rapid improvement in orders for durable goods, said Reaser, of Banc of America Capital Markets in St. Louis.

"The growth of productivity has been very beneficial, but it is not enough to offset the fact that companies are finding that more workers are needed," she said. "With corporate revenues, profits and confidence all on the rise, we are bound to see a further step-up in hiring."

Interest rates have been on hold for many months, and few analysts see any likelihood Federal Reserve policy-makers will act to tighten credit when they meet tomorrow.

At most, Fed members will offer a clue that an increase is on the horizon.

Chicago banker Kenneth Skopec of MB Financial Bank says the economy is growing so rapidly that a move for higher short-term rates would be justified.

But he sees little likelihood the Fed will take anything but a tiny step on rates before the autumn elections.

"The central bank may boost its short-term target by a quarter-point sometime this summer, but it appears that no serious move on rates will occur quickly," said Skopec.

Over the next two years, he sees a possibility the Fed will be more aggressive, "ratcheting up rates in historic steps."