- The Washington Times - Friday, August 6, 2004

This year’s hiring surge nearly sputtered out last month as a broad pullback by employers slowed job gains to 32,000, the lowest of the year, the Labor Department reported yesterday.

The unemployment rate ticked down a notch to 5.5 percent, reflecting the 1.5 million jobs created in previous months, but yearly wage growth for most workers dropped below 2 percent with the abrupt slowdown in hiring that started in June.

The weak job gains, which analysts blamed on everything from high oil prices and productivity growth to the uncertainty spawned by terrorist threats and the conflict in Iraq, set off another round of losses on Wall Street. The Dow Jones Industrial Average fell 148 points to a new low for the year of 9,815.

“This is a turning point,” said Fred Capozzi, head of the equity division at Blaylock & Partners, predicting more troubles ahead for the markets and the economy.

The jobs report forced strategists from Wall Street investment houses to Main Street businesses to re-examine their outlooks for growth. Many had expected job gains to average 200,000 a month this year, fueling a strong, self-sustaining expansion. The renewed scarcity of jobs put those predictions in doubt.

Job growth in nearly every sector fell off last month from the spring’s robust pace, including manufacturing, construction, education and government. Retailers, hoteliers and financial firms, which had been hiring earlier in the year, cut jobs.

The setback emboldened Democrats, who say President Bush’s tax cuts failed to produce the lasting turnaround in the economy needed to put millions of people back to work.

“The president keeps saying we’ve turned the corner. But unfortunately, today’s job numbers further demonstrate that our economy may be taking a U-turn instead,” said Massachusetts Sen. John Kerry, the Democratic presidential candidate.

“America will not turn the corner to better days until we have a new president who can see our problems and take action to fix them.”

Bush officials countered that the dip in the unemployment rate to 5.5 percent, the lowest since October 2001, from a peak of 6.3 percent a year ago indicates the job market is getting stronger.

The unemployment rate is calculated from a survey of 60,000 households, while the jobs figure is derived from a survey of 400,000 businesses that do one-third of the hiring in the United States. The two surveys have diverged often since the 2001 recession.

Economists give more weight to the payroll survey because it has proved to be more accurate, though it does not include self-employed workers such as consultants and contractors. The household survey has shown a substantial increase in self-employment since the recession.

“Today’s employment report shows our economy is continuing to move forward,” the president said at a campaign rally in Stratham, N.H. “We’ve got more to do. I won’t be satisfied until everybody who wants to work can find a job.”

Scott Lilly, analyst with the Center for American Progress, said the jobs report “makes it clear that we are not in a normal business cycle” that is fueled by growing jobs and income.

“The brief period of significant employment growth since August 2003 appears to be winding down, despite enormous fiscal stimulus created by an explosion of federal borrowing,” he said.

Tax cuts were not targeted enough on increasing demand among average consumers, he said, but instead have produced a surplus of profits for businesses and wealthier individuals who are not using the cash to expand business and put people back to work.

Richard Yamarone, economist at Argus Research Corp., said businesses are behaving differently than they did in the past. Corporations are awash in cash and profits, but they are not using it to increase hiring and wages or lay other expansion plans.

The reluctance to put record profits into hiring and investment was highlighted recently by stunning announcements from software giant Microsoft Corp. and previously bankrupt MCI Inc. that they will distribute their “hoards of cash” to investors through dividend payments and stock buybacks.

Mr. Yamarone said businesses are hesitant to hire because of the pervasive uncertainty created by the threat of terrorism and war since the September 11 terrorist attacks.

Federal Reserve Chairman Alan Greenspan also blames terror-related anxieties for the extraordinary reluctance of businesses to make and carry out plans for the future as they did in past cycles.

The uncertainties escalated this summer with the June transfer of power in Iraq, and warnings that terrorist attacks are likely to occur before the November election, Mr. Yamarone said.

Potential targets include the Olympics in Greece and the Republican convention in New York this month, and the International Monetary Fund meetings in Washington in October.

“The economics of everything under the sun has changed” because of terrorism, “most of all, the way business is conducted,” Mr. Yamarone said. He predicted businesses will remain squeamish about hiring as long as the threats continue.

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