New jobs near halt despite growth

Job growth slowed to nearly a halt last month as 309,000 workers, discouraged that a boom in economic growth at year’s end did not produce enough new jobs, dropped out of the labor force and drove the unemployment rate down to 5.7 percent, the Labor Department reported yesterday.

Despite soaring sales and profits, businesses eked out only 1,000 new job postings during the month. A 50-year high in orders at the nation’s factories had no effect on hiring as manufacturers shed another 26,000 jobs and marked a 41st straight month of job losses.

Businesses’ relentless drive to save costs and spur productivity continued to overshadow hiring plans. Hotels and restaurants, banks, and even retailers — which boasted the best holiday sales since 1999 — eliminated thousands of jobs. Only the booming construction, health care and temporary services industries managed to add jobs during the month.

The sudden halt in hiring activity, after several months of gains, hit workers’ pocketbooks. Hours were cut and wage gains slowed to 2 percent over the year, the lowest in a decade, leaving workers with dwindling wherewithal to pay off mounting bills.

“Take your pick: awful, sobering, pathetic,” said Bill Cheney, chief economist with John Hancock Financial Services. “No matter how you look at it, this is a thoroughly depressing report.”

While the decline in unemployment — which fell from 5.9 percent in November and a high of 6.3 percent in June — looked promising, “it was for the wrong reasons,” Mr. Cheney said. It mostly reflected diminished hopes among the 8.4 million people looking for jobs. Rather than continue to hunt during the Christmas season, many simply gave up and stopped trying.

“It seems like we’re back to the jobless recovery,” he said. “Businesses are now able — but apparently not yet willing — to hire.”

The report precipitated declines on Wall Street yesterday, with the Dow Jones Industrial Average tumbling 134 points to 10,458 and the dollar sliding to new lows against European currency. Market analysts had been expecting a pickup in hiring to around 150,000 jobs during the month, not a sharp decrease.

“The Street was counting on strong momentum to carry into 2004,” said Richard Yamarone, economist at Argus Research Corp. “The December employment report has clearly taken the wind out of the sails.”

With productivity, or output per worker, running at 9.2 percent during the summer quarter, Mr. Yamarone noted that businesses can continue to shed jobs even as they enjoy an upsurge in revenues and sales. “Stellar productivity rates have rendered new hiring redundant.”

Job growth nearly doubled from 77,000 positions in the third quarter to 144,000 in the fourth quarter, but that pace is slow, given the millions of people looking for work, and will remain that way for some time to come, he said.

With so few jobs being created, long-term unemployment remains a problem, analysts said. Congress allowed a program providing extended unemployment benefits for those out of work for six months or longer to expire last month. Yesterday’s report showed that the average length of unemployment now is five months, and nearly 2 million people have been unemployed for longer than six months.

Mr. Yamarone said he is concerned that the expiration of benefits, combined with the still-discouraging jobs outlook, will start to dampen consumer spirits and curb consumer spending.

While the continued loss of manufacturing jobs is disappointing, Heritage Foundation economists said that the report still provides cause for optimism because the vast service sector — which is five times bigger than manufacturing — continues to create jobs. Service industries such as health care, education and government added more than 300,000 jobs last year.

Also, while employers reported cutting a net 74,000 jobs during the year in a survey of businesses by the Labor Department, households surveyed separately by the department reported a 2 million increase in employment in 2003 — mostly among self-employed people and very small businesses whose hiring is not quickly detected in the business survey.

Economists note that a wide divergence between the two surveys often occurs when the economy is just starting to recover from a downturn. During such turning points, the household survey often has been more accurate in portraying hiring activity than the business survey, which later may be revised to reflect greater job creation than originally estimated.

President Bush, at a speech to women business owners, hailed the decline in the unemployment rate as “a positive sign that the economy is getting better,” and said he has faith that the small businesses that have benefited from his tax cuts are starting to hire again. He said more jobs would be added if the tax cuts were made permanent.

But the president’s Democratic critics said yesterday’s report shows that Mr. Bush’s tax cuts failed to produce the nearly 2 million jobs he promised by the end of last year. Since the tax cuts were enacted in June, only 221,000 jobs have been created.

“It’s not just anemic, it’s pathetic,” said House Democratic Whip Steny H. Hoyer, Maryland Democrat. “The Bush administration is in deep denial on this critical issue.”