- The Washington Times - Saturday, May 4, 2002

Unemployment last month rose to 6 percent, the highest since August 1994, as employers did not create enough new jobs to satisfy all the people looking for work.

Yesterday's report from the Labor Department confirmed that the economic rebound in recent weeks has slackened after starting strong early this year. And it dashed hopes that the nation might avoid a period of "jobless recovery" like the one after the 1990-91 recession.

The report showed a deteriorating labor market, with unemployment increasing to double-digit levels for blacks, wage gains declining almost to zero after inflation, a drop in hours worked, and the average period of unemployment rising.

Among the few bright spots in the report was a small net gain in jobs of 43,000 concentrated in retail, services and temporary help. Combined with the smallest drop in manufacturing jobs since October 2000 19,000 economists said the report confirms that the recovery, while slowing, remains on track.

"We're still in that never-never land where people are concerned about whether the economic recovery is going to keep plugging along," said Gil Knight, manager of the Ark Small-Cap Equity Portfolio.

Srinivas Thiruvadanthai, research director of the Jerome Levy Economics Institute, said the decline in weekly hours and tepid income gains are a blow to consumers already weighed down by record debt loads and rising energy prices, further dampening the outlook for spending and growth.

The jump in "headline unemployment" from 5.7 percent in March, while not too reliable because it fluctuates a lot from month to month, is "politically significant and will put pressure on policymakers to find ways to keep the expansion going," he said.

White House Press Secretary Ari Fleischer said the possibility of setbacks such as yesterday's report is the reason President Bush has been cautious about celebrating earlier reports signaling an end to the recession.

"The president worries about a jobless recovery," Mr. Fleischer said. But he added that "while today's [unemployment] jump was higher than the private forecasters expected, it is not out of the usual as part of a recovery."

Richard Yamarone, economist with Argus Research Group, sees a connection between the weak hiring seen in the jobs report and the sagging stock market, which lost ground again yesterday on pessimism over the lagging jobs market.

"Businesses refrained from aggressively adding to payrolls during April" because they remain "uncertain about the viability of economic recovery and the strength of future demand," he said.

Businesses have been expressing their concerns about the vigor and durability of the recovery in their earnings reports, precipitating a fall in stocks in recent weeks that has wiped out all the Nasdaq Composite Index's gains since Oct. 10.

Michael Dell, chief executive of Dell Computers, this week told investors that he doesn't see a "huge rebound" in computer spending despite the improving economy.

Corning CEO James Houghton said this was "the worst period this company has faced since the Great Depression, or even before."

But while many doubts remain, elements of yesterday's report confirm that the recovery is under way, Mr. Yamarone said. He cited particularly the back-to-back gains in temporary employment of 69,000 in March and 52,000 in April.

"This incredible surge is common during initial periods of economic recovery" because employers are practicing "just-in-time employment," he said.

"Before employers fully commit to the extremely costly action of hiring full-time employees, they generally seek part-time help" so they don't face huge layoff costs if the economy falters again, he said.

"Conversely, if the recovery gathers steam and proves permanent, then employers can then proceed with hiring plans" for full-time workers, he said.

The unexpected spike in the unemployment rate greatly diminishes the odds that the Federal Reserve will raise interest rates anytime soon, economists said. The Fed did not raise rates for more than a year after unemployment peaked in the last recession.

Dean Baker of the Center for Economic and Policy Research noted that the extraordinarily long period of unemployment below 6 percent through last month was exceeded only by a nine-year stretch during the 1960s expansion.

But he said last month's weak income gains for consumers are "cause for concern," especially when combined with a decline in business investment and state and local government spending that appears to be under way.

After being one of the most robust sources of employment during the recession, local governments hired only 2,000 workers last month.

"Sources of stimulus are now fading or being reversed," Mr. Baker said. "This makes a double-dip recession a serious possibility."

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