- The Washington Times - Thursday, January 23, 2003

The economy's soft patch appears to have gotten significantly softer. In particular, the labor market has become extremely soft in recent months. While the Labor Department's household survey for December indicated that the unemployment rate remained at 6 percent, nonfarm payroll employment data, which are based on reports from business establishments, revealed that jobs declined by 101,000 in December. Moreover, October and November payroll data were both revised downward.
Indicative of the labor market's recent deterioration is the fact that the job losses in November and December (189,000) exceed the number of jobs lost for the entire year (181,000). In December, moreover, factory employment fell for the 29th month in a row, the longest period of uninterrupted decline since World War II. Since employment peaked at 132.65 million in March 2001, the month the National Bureau of Economic Research (NBER) officially declared to be the beginning of the recession, the U.S. economy has jettisoned 1.95 million jobs.
Ominously, after the Labor Department released its December employment report, the NBER's Business Cycle Dating Committee said it would not determine the cycle's low point until it "concludes that a hypothetical subsequent downturn would be a separate recession, not a continuation of the past one."
Then, last Friday the Fed reported that industrial output declined by 0.2 percent in December, the fourth monthly decline over the past five months. During last year's fourth quarter, industrial output declined at an annual rate of 2.4 percent. Also, nearly a quarter of the economy's production facilities lay idle. That goes a long way explaining why business investment spending has fallen for eight quarters in a row, the longest sustained decline since World War II.
Meanwhile, the Commerce Department reported on Friday that the trade deficit for November reached a record $40.1 billion. Economists can debate whether the consequences of an expanding trade deficit are good or bad. However, the indisputable, immediate arithmetic effect, other things being equal, is to reduce the growth rate of gross domestic product (GDP) from what it otherwise would be. The deteriorating output and trade situations closely followed confirmation by the Fed that retail sales for the holiday season were as poor as initially reported. So, it should not be surprising that a survey of 20 economists conducted by Macroeconomic Advisers revealed a consensus estimate for the fourth-quarter's annual GDP growth rate of a mere 0.5 percent. That's in the so-called dead-in-the-water range.
The American consumer's appetite for both imported goods and domestic output clearly is the most important factor keeping the global economy from sinking. Should the U.S. consumer take a turn before other global economic forces are reinvigorated, all bets will be off. And dead in the water will look like the good old days.

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