- The Washington Times - Friday, November 7, 2003

The unemployment rate declined to 6 percent in October as businesses created nearly 300,000 jobs in the past three months — a breakthrough for the economy that suggests the recovery finally is in full swing.

The Labor Department’s report yesterday of job gains came as a major surprise not only because the 126,000 gain for October was bigger than expected, but also because it was accompanied by revisions that showed a similar dose of job growth in September and a small 35,000 increase in August. The gains followed job losses that averaged 85,000 a month since January.

The report showed the economy started creating jobs during the summer quarter when economic growth soared at a blockbuster 7.2 percent rate on a one-time boost from tax rebates. Since job growth had been the missing ingredient in the recovery since the recession of 2001, economists hailed the report as a sign that one of the longest job droughts in modern times is finally ending.

“We’ve finally shifted from jobless recovery to sustained expansion,” said Bill Cheney, chief economist with John Hancock Financial Services, who predicted the job gains will continue to increase to 200,000 a month next year. “Sizzling economic growth eventually had to translate into stronger job growth and, in fact, it was happening just under the radar until now.”

“We have liftoff,” said Joel Naroff, president of Naroff Economic Advisers, noting that the job gains were led by some of the strongest sectors — retailers, health care, education and temporary help — but were visible nearly everywhere except manufacturing.

Economists said the decline in unemployment from 6.1 percent in September should give a much-needed lift to consumer spirits and help stoke a strong Christmas selling season.

The job gains, while modest by historical standards, are seen as important both because consumers focus on them and because growth in jobs and incomes is needed for the recovery to continue. Consumer-income growth, and thus spending growth, in the past two years came mainly as the result of tax cuts, which increased disposable incomes, and higher productivity, where people worked harder so they could earn more.

But yesterday’s report showed that income growth was tapering off without any growth in jobs. The yearly rate of wage gains dropped dramatically in the past two years from more than 4 percent to 2.4 percent — the lowest in a decade. The increase in take-home pay provided by President Bush’s tax cuts served mostly to mask the marked downtrend in wage income, economists said.

The White House celebrated yesterday’s news and took credit for the boost from consumer- and business-tax breaks that catapulted the economy to its strongest performance in nearly two decades during the summer. Mr. Bush’s re-election prospects a year from now depend heavily on public perceptions that the economy and job market are improving.

“Three months of sustained job creation shows that President Bush’s agenda is helping our economy grow,” said Commerce Secretary Donald L. Evans. “Americans are taking home paychecks instead of unemployment checks.”

Mr. Bush’s Democratic opponents said little about the report.

“You have to hope things are getting better,” said Rep. Charles B. Rangel, New York Democrat and ranking minority member of the House Ways and Means Committee. But he noted that the ranks of the long-term unemployed, those looking for work for more than six months, remained at a 10-year high of 2 million.

“We cannot let a little good news make us forget the big hardships faced by the families of these workers,” he said. Democrats are calling on Congress to pass another extension of unemployment benefits for those who are still out of work before it goes home for the holidays.

Richard Yamarone, economist at Argus Research Corp., said the long periods of unemployment being experienced by some workers continue to pose an obstacle to the recovery because they “can be outright devastating to consumer attitudes and spending habits.”

And while he expects the job gains to continue and feed the recovery, he noted that many of the jobs being created “aren’t exactly those that can support a household.” More than a third of the jobs that opened up last month were in retail and temporary help, reflecting hiring for the holiday season as well as efforts by employers to avoid hiring full-time workers who receive full benefits, he said.

“Traditionally a pickup in temporary positions is a sign of the early stages of economic recovery,” Mr. Yamarone said. “This time around, however, it is an indication of structural change in the labor markets. Businesses can no longer afford the costly burden of health and pension benefits.”

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