- The Washington Times - Friday, February 6, 2004

The long job drought eased last month, with job growth reaching a three-year high of 112,000 and the unemployment rate declining to a two-year low of 5.6 percent.

The unspectacular but steady job gains in the past five months sparked a rally on Wall Street yesterday, with the Dow Jones Industrial Average rising 97 points to 10,593.

The increase in hiring reported by the Labor Department yesterday was mostly among retailers and builders. Manufacturers continued to shed jobs, and previously strong job gains in business services, temporary help and education halted during the month.

While the number of job openings reported by businesses was tepid by historical standards, a separate survey of households by the department found a stunning 496,000 increase in employment — an indication that many people have become self-employed or are finding work as independent contractors.

The rise in self-employment is one reason the unemployment rate declined from 5.7 percent in December and from a high of 6.3 percent in June. The number of self-employed may have risen by as much as 1 million in the last year — even as businesses were reporting big job cuts.

While much of the independent employment may be temporary, economists say it is one more sign that the job market is slowly but steadily improving.

“A critical transition has taken place from firing to hiring,” said Steven Rucchiuto, chief economist of ABN Amro. After three years of focusing on cutting costs through layoffs and other streamlining, businesses are exhibiting “a lot of caution about putting people back to work.”

One obstacle to hiring in the last few years has been the rapid growth in the cost of health care benefits provided by most employers. Double-digit inflation in medical care has prompted many businesses to hire temporary workers and independent contractors rather than full-time workers who receive such benefits.

The high cost of health care benefits also has suppressed wage growth to a low of about 2 percent in the past year from more than 4 percent in 2000.

Manufacturers, which have shed 3.3 million jobs since 2000 in by far the biggest job losses of the recession, have been particularly sensitive to medical costs as well as other high operating costs such as near-record energy prices.

Despite stellar productivity gains by manufacturing workers, escalating costs have driven manufacturers to shut down operations in the United States and open plants in Third World countries where labor costs are much lower.

“We have a long way to go to offset long-term structural challenges if U.S. manufacturing is to sustain its employment base,” said Jerry Jasinowski, president of the National Association of Manufacturers. However, he celebrated a tiny 3,000-job increase at furniture and computer makers and a few other industrial plants last month.

While pressure to compete with low-cost producers overseas is a major reason businesses have striven to keep hiring and labor costs down, the nearly three-year-long hiatus in job creation is one of the longest in U.S. history and is puzzling to many economists.

Particularly in view of the robust economic growth of 6 percent posted in the second half of 2003, the meager job growth seems strange and disappointing.

“This is the weakest job creation rate relative to economic growth on record,” said Steven Wood, an economist at Insight Economics.

Normally, the United States must add about 150,000 jobs a month just to keep up with growth in the population of workers. Since September, 366,000 jobs have been added, or 73,000 a month.

“We need more jobs,” said Joel Naroff of Naroff Economic Advisers. “It is accurate to say that job growth has returned, but it is not at an acceptable level. We need over 200,000 a month to feel good about the sustainability of the expansion.”

The pace of growth is not strong enough to help most of the 9 million workers looking for jobs or the 2 million people who face the loss of unemployment benefits in the first half of the year, said Isaac Shapiro, senior fellow at the Center on Budget and Policy Priorities.

“It will take considerable time before the labor market is reasonably healthy” and the 2.4 million jobs lost since the recession are regained, he said. “At the pace of last month’s job growth, it would take nearly two years for this jobs deficit to be closed.”

He called on Congress and President Bush to restore the three-month federal extension of unemployment benefits allowed to expire in December. The House has voted to renew the benefits but the Senate has not.

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