- The Washington Times - Friday, March 4, 2005

U.S. employers created 262,000 jobs last month, a pickup in job growth that sparked a rally on Wall Street and sent major stock indexes to their highest levels since June 2001.

The widespread job gains reported by the Labor Department yesterday were accompanied by an uptick in the unemployment rate to 5.4 percent and a drop in wage growth to zero.

But Wall Street took that as a sign that the labor market is not heating up in a way that would provoke inflation, creating a kind of economy like the one that boosted markets in the early 1990s when growth was neither too hot nor too cold.

The Dow Jones Industrial Average jumped 108 points to 10,941 — within striking distance of 11,000 for the first time since summer 2001. The Standard & Poor’s 500 Index rose 1 percent to 1,222, its highest level since July 2001.

President Bush hailed the fresh signs of growth. “The economy’s getting better. … Today we got some good news.”

“Perhaps now we’re back on the road and picking up speed,” said Bill Cheney, chief economist with John Hancock Financial Services. “If today’s report signals the beginning of a trend of much stronger job growth, we will finally be able to work off the backlog of lost employment opportunities from the past four years.”

Mr. Cheney said the rise in unemployment from 5.2 percent in January was actually a good sign, because it suggests that people who became discouraged and stopped looking for jobs are re-entering the labor market now that jobs are being created.

“More people feel that it’s actually worthwhile to start job hunting,” he said. “We have millions of potential job seekers still sitting on the sidelines,” and the unemployment rate may continue to rise for a while as those people are drawn back into the market.

With no growth in average wages, workers may not feel much like celebrating, he said, but the redeeming factor is the weak wage growth will prevent the Federal Reserve from fearing a pickup in inflation that would require a sharp rise in interest rates to quell.

Richard Yamarone, economist with Argus Research Corp., is not convinced that the doubling of job growth last month from 132,000 in January signals the beginning of a more robust job market.

“We caution investors: One month of stellar job creation does not a trend make,” he said. Many hurdles to growth remain in the economy, he said, including skyrocketing oil prices, surging health care and benefits costs and rising interest rates.

Premium oil prices rose to $53.78 in New York trading yesterday, within $2 of record highs of more than $55 a barrel. With economic growth likely to average little above 3 percent this year, Mr. Yamarone said job gains averaging between 140,000 and 175,000 are more likely in the months ahead.

“The fact of the matter is, businesses are reluctant to hire at an accelerated pace,” and most corporate chieftains are hiring only enough workers to replace those who retire or leave for other reasons, he said.

Nearly half of chief executives surveyed last month by the Business Roundtable, a group of major U.S. companies, said they planned only to maintain existing levels of staff.

Scott Lilly, senior fellow at the liberal Center for American Progress, said he couldn’t understand the excitement over the jobs report.

“Nothing speaks more clearly to the sad state of the U.S. labor market than the unbridled enthusiasm that is displayed for a monthly employment report that is no more than average relative to the historical rate of job growth,” he said.

“The most discouraging aspect of the report was the continued deterioration in the real, or inflation-adjusted, wages of production and nonsupervisory workers. This group represents about 80 percent of the American work force,” he said.

“Their hourly earnings fell by about another 4 cents based on the inflation rate of the past year. The real hourly and weekly earnings of these workers is below the level of one year ago.”

Workers’ pay should be rising, he said, given the strong 4 percent gain in productivity in the past year. Historically, workers share in productivity gains through increased wages.

“Workers have too little leverage with employers to win wage increases,” he said. “Employers are not only keeping all of the benefits of increased worker output, they are winning wage concessions as well.”

Peter Morici, business professor at the University of Maryland, said the depressed wages are particularly acute in manufacturing, where wages fell 0.4 percent last year after inflation despite a robust 5.2 percent increase in productivity.

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