Steve Quayle News Alerts

January 9, 2004

NEW YORK (CNN/Money) - U.S. employers barely expanded their payrolls for the fifth straight month in December, according to a government report Friday, falling far short of Wall Street forecasts even as unemployment fell.

Payrolls outside the farm sector grew by 1,000 jobs, the Labor Department said, compared with a downwardly revised gain of 43,000 in November. The unemployment rate fell to 5.7 percent, compared with 5.9 percent in November.

Economists, on average, expected 148,000 new jobs and an unemployment rate of 5.9 percent, according to Briefing.com.

"The much weaker than expected rise in payrolls truly confirms the cautious demeanor expressed by various Federal Reserve policy officials," said Anthony Chan, chief economist at Banc One Investment Advisors.

Though it seems inconsistent for the unemployment rate to fall despite virtually no job growth in December, the two numbers are generated by separate surveys. The payrolls number comes from a much broader survey of businesses, while the unemployment rate comes from a survey of households.

What's more, the labor force -- defined by the Labor Department as people either working or actively looking for work -- shrank by 309,000 people, possibly including thousands of workers who simply gave up looking for work in a weak market.

U.S. stock market futures extended earlier losses after the report, pointing to a negative opening on Wall Street. Treasury bond prices rose.

The economy grew at a blistering 8.2 percent annualized rate in the third quarter and seems likely to grow at a still-healthy pace of at least 4 percent in the fourth quarter, according to many economists.

But businesses have been able to generate that growth by pushing their current workers harder and using technology to produce more efficiently. Exploding productivity -- or output per worker hour -- is good news for corporate profits and for the wages of people who have jobs, but may result in a much slower job-market recovery, some economists fear.

"On average, non-farm payrolls have grown by 3.1 percent each year during [economic] expansions, which translates into 336,000 increases per month," Chan said. "We are not going to see anything like that in 2004."

In its report, the Labor Department said payrolls in service industries, including education and health care, grew by just 13,000 jobs in December. Goods-producing industries shed 12,000 jobs. Retailers lost 38,000 jobs, possibly reflecting the impacts of bad weather in early December and a strike at grocery stores in California.

Average hourly wages rose to $15.50 from $15.47 in November. But average weekly earnings actually fell by $2.08, to $522.35 from $524.43 in November. Wage growth is crucial for consumer spending, which fuels two-thirds of the economy.

Ominously, the average work week shrank to 33.7 hours from 33.9 in November, indicating businesses decreased activity.

http://money.cnn.com/2004/01/09/news/economy/jobs/index.htm?cnn=yes