- The Washington Times - Saturday, August 4, 2001

Employers cut another 42,000 jobs last month, amid an overall contraction in business activity, in the latest sign that the private economy may have slipped into recession.

The job losses reported by the Labor Department and the contraction in nonmanufacturing business reported by the National Association of Purchasing Management yesterday both were the third such declines in the past four months.

Despite the job cuts reported by businesses, which have totaled 260,000 since March, the unemployment rate as measured in a separate survey of households by the department did not rise last month from 4.5 percent. That was apparently because many workers have been discouraged by the paucity of jobs and dropped out of the labor force in recent months.

Households have reported a total job loss of 620,000 since January. The 73,000 job cuts by businesses last month were mostly in manufacturing and temporary help services, and were offset partially by a 31,000 increase in government jobs, mostly in state and local education.

"The private economy was in recession in the last quarter" and yesterday's reports show it started out the summer in no better shape, said Thomas Carpenter, economist with ASB Capital Management.

He noted that this time last year private-sector jobs were growing by more than 200,000 a month.

"Government at all levels has been a positive factor," he said, but "the government's role in the last six months has been to keep the growth rate of the economy above zero."

The government cannot keep growing when the private economy is shrinking, economists say, and it cannot be depended on to return the economy to health.

Mr. Carpenter expects the economy to be exceptionally weak for months to come, partly because job losses and unemployment will continue to rise as businesses continue to aggressively cut costs to stem losses and re-establish profitability.

The economic future also is clouded by slumps in Japan, Asia, Europe and Latin America that appear to be reinforcing the one in the United States, he said.

The Federal Reserve and other world central banks will have take aggressive action to slash interest rates and keep them low for a long time, to ensure a revival in the economy, he said.

"The job losses over the last six months have the potential of keeping consumer spirits at a low ebb, and have the ability to start undermining growth," he said. "The Fed needs to put a floor under the global economy and stabilize planetary growth."

Mark Vitner, vice president at First Union bank, noted that private employment has shrunk at a 0.7 percent pace in the past three months, led by big job losses in manufacturing that have totalled 837,000 in the past year. Temporary jobs, many of which are in manufacturing, also have dropped by 429,000 since September.

Outside the manufacturing and temporary job losses, employment in the private sector has expanded by a "respectable" 1.8 percent in the past year, he said.

"That suggests that we are still largely dealing with a manufacturing recession, not a full-blown downturn," he said.

Robert McTeer, president of the Fed's Dallas reserve bank, yesterday noted that the sharpest downturn has been in high-tech manufacturing while "the broader service economy has been strong enough to sustain" the expansion.

Labor Secretary Elaine L. Chao said the still-low unemployment rate and somewhat smaller manufacturing job loss of 49,000 last month were "positive" developments. Overall, she described the job picture as "flatter than Kansas" and expressed hope the economy will recover later this year.

John H. Makin, economist with Caxton Assoc., said Washington policy-makers and private forecasters who continue to predict a solid rebound by year's end should stop kidding themselves.

Recent job reports suggest the United States is in the early stages of recession, he said.

"The rising tide of profit disappointments makes a continued rise in layoffs seem likely," he said. "Meanwhile, job seekers are giving up on finding jobs," and if they weren't dropping out of the labor force, the unemployment rate would be above 5 percent, he said.

Despite showing substantial job losses in recent months, the Labor Department report may actually be overstating employment, he said, because the department is assuming that small businesses have continued to create 155,000 jobs a month as they did last year.

A year from now, the department's "plug factor" for small-business job creation will be replaced with actual tallies that are likely to show the economy was in recession, he said.

Stock trading was not affected by yesterday's jobs report. The Dow Jones industrial average fell 38 points to 10,513. Broader stock indicators also fell. The Nasdaq Composite Index dropped 21 to 2,066, while the Standard & Poor's 500 index fell 6 points to 1,214.

Declining issues led advancers by a small margin on the New York Stock Exchange. Volume was 929.12 million shares, compared with 1.22 billion shares a day earlier.

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