Forum Archive Index - May 2002

[nickk@quicksilver.net.nz]

>From Bloomberg:

Hate to sound like a parrot but I warned of this yesterday.  Let's hope the
investment dollars pour this way!



U.S. Economy: Claims Show Job Market Isn't Recovering (Update2)
By Siobhan Hughes


Washington, May 30 (Bloomberg) -- The number of Americans collecting
jobless benefits rose for a fifth straight week to a 19- year high, as U.S.
companies put off hiring and the recovery leaves behind millions of
jobseekers. 

Unemployment may rise above April's 6 percent rate before it starts to
decline, said Robert McTeer, president of the Federal Reserve Bank of
Dallas. ``I hope it doesn't last, but so far our rebound bears some
resemblance to the so-called jobless recovery after the 1990-91
recession,'' he said in a Montreal speech. 

International Business Machines Corp. eliminated 1,625 jobs last week,
making the computer maker one of the latest companies to reduce costs
through dismissals. Business spending on software and equipment has
declined since late 2000. That's caused most companies to defer hiring as
IBM and others keep firing workers. 

States received 410,000 initial jobless claims in the week that ended
Saturday, the Labor Department said. While down from 422,000 a week
earlier, claims have been higher than 400,000 since mid-March, a level
economists associate with little hiring. 

The total number of workers on the benefit rolls rose by 49,000 during the
week that ended May 18 to 3.89 million, the highest since 3.95 million in
mid-January 1983. 

``We don't see the labor market turning around any time soon,'' said Drew
Matus, an economist at Lehman Brothers Inc. in New York. 

Newspapers are advertising fewer jobs than a year ago, when the recession
was just under way. While the Conference Board's monthly help-wanted index
rose by 1 point in April to 47, the index was 65 in April 2001. 

Internet Job Cuts 

Internet-based companies announced 2,078 job cuts this month, up from 824 a
month earlier, the employment firm Challenger, Gray & Christmas said today.

``The assumption that there are no jobs left to eliminate in this sector is
proved wrong month after month,'' said John A. Challenger, chief executive.
So-called dot.coms announced 13,149 cuts in May of last year, Challenger
said. 

The economy has lost 1.2 million jobs since April 2001, and the jobless
rate is now the highest in almost eight years. Companies are usually slow
to hire until they become convinced growth will continue. After the
1990-1991 recession, the unemployment rate rose for 15 months. 

The pace of expansion may be slowing. Gross domestic product grew during
the first quarter at a 5.6 percent annual rate, the fastest in almost two
years. Growth will probably slow to a 3.1 percent pace this quarter,
according to the latest Blue Chip Economic Indicators survey. 

Business Spending 

One reason is the failure of business spending to pick up, leaving
consumers with the burden of sustaining growth. Consumer spending is tied
to incomes, and wage and salary income grew during April at the slowest
pace since January, the Commerce Department reported this week. 

Stocks fell and Treasury securities rose after the jobless claims report
elevated investor expectations that Fed policy makers may hold off raising
the benchmark overnight bank lending rate until September. The overnight
rate is currently at a 40-year low of 1.75 percent. 

The Dow Jones Industrial Average fell 47 points, or 0.5 percent, and the
Nasdaq Composite Index declined 2 points, or 0.1 percent. The 4 7/8 percent
note maturing in February 2012 rose 1/8 point, pushing down its yield 0.02
percentage point to 5.04 percent. 

The number of new claims last week was the same as expected in a Bloomberg
survey of 38 economists. The prior week's level was higher than the 416,000
previously reported. 

Claims have averaged 413,400 so far this year, up from 406,000 last year
and the most since 448,000 in 1991. 

IBM Firings 

IBM, the world's biggest computer maker, last week eliminated 1,000
positions in a division that makes server computers and 625 in other
groups, said Lee Conrad, a Communications Workers of America official. The
company's sales have trailed analysts' estimates by $1 billion in each of
the past two quarters. 

Weekly initial claims had fallen as low as 387,000 in February, when the
economy was beginning to rebound from the terrorist attacks of Sept. 11.
Claims rose again in part because sales haven't recovered at financial and
business services firms. 

``Some industries tried to hang on without layoffs, and Wall Street was the
biggest culprit,'' Steve Cochrane, an economist at Economy.com in West
Chester, Pennsylvania, said. ``There was a lot of hesitance to cut costs
early, and now they're paying the price.'' 

Knight Trading Group Inc., the biggest Nasdaq Stock Market dealer, has cut
105 jobs, or 8 percent of its staff, since the end of March, interim chief
executive officer Anthony Sanfilippo said last week. It has lost money in
two of the last three quarters amid trading declines and the introduction
of decimal stock pricing. 

Insured Unemployment Rate 

The insured unemployment rate, which tends to move up and down with the
U.S. jobless rate, stayed at 3 percent in the week that ended May 18. 

Twenty-nine states and territories reported a decrease in new claims during
the week that ended May 18, while 24 states and territories reported an
increase. 

Continuing claims, the insured unemployment rate and state detail are
reported with a one-week lag to initial claims. 

Companies are able to make do with fewer employees when demand improves
because computers and other equipment can take over more tasks.
Productivity, a measure of work performed by one person in an hour, rose
4.3 percent from March 2001 to March 2002, greater than with past
recessions. 

Some economists question the validity of recent claims numbers. A new law
that extended jobless benefits for workers who had already been on the
rolls for the maximum 26 weeks fueled a surge in applications in mid-March.
Those effects may not have yet worn off. 

``Even though Americans see an improving labor market, the data don't show
it because of the distortion from the introduction of extended benefits,''
said Kevin Logan, chief market economist at Dresdner Kleinwort Wasserstein
in New York. 




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