Sabri forwarded this:
Top Financial News
11/01 16:26
U.S. Economy: Payrolls Fall, Manufacturing Shrinks (Update2)
By Siobhan Hughes and Carlos Torres
Washington, Nov. 1 (Bloomberg) -- The U.S. unemployment rate rose
to 5.7 percent in October from 5.6 percent a month earlier.
Companies cut jobs for a second straight month and manufacturing
weakened, leading many economists to predict the Federal Reserve
will lower interest rates next week to spur growth.
``We should be doing a lot better at this stage of the
recovery,'' said Alan Blinder, a Princeton University economics
professor and former Fed vice chairman, in an interview. ``It
certainly looks likely'' that central bankers will reduce their
benchmark interest rate on Wednesday.
Payrolls fell by 5,000 after dropping 13,000 in September, while
hours worked and weekly earnings declined, the Labor Department
said. The Institute for Supply Management's factory index dropped
last month to 48.5. That was the second monthly reading below 50,
which signals contraction.
More than 1.5 million jobs have been lost since March 2001, when
the economy slipped into a recession that probably ended at the
start of this year. Job growth is key for sustained consumer
spending, which accounts for two-thirds of gross domestic
product, economists said.
Expectations of a rate cut next week have risen with reports of
statistics suggesting the recovery is lethargic. Of 127
economists surveyed by Bloomberg News as of 4 p.m. Friday, 60
were predicting a quarter-percentage-point reduction in the
overnight bank lending rate and 17 forecast a half-point cut.
Dissenting Views
Not all economists agree. ``Growth seems to be slowing, but
perhaps not as much as one might think and not enough to force
the Fed to move this close to an election or, for that matter, at
all in the absence of a war in the Middle East,'' said Vincent
Boberski, senior economist at RBC Dain Rauscher Inc. in Chicago.
Boberski also noted that the economy lost fewer jobs in September
than the previously reported 43,000, and gained 123,000 in
August, more than the previously estimated 107,000. The revisions
``take much of the sting'' out of the October losses, he said.
Economists had expected no change in payrolls and an increase in
the unemployment rate to 5.8 percent from September's 5.6
percent, based on the median of 62 forecasts in a Bloomberg News
survey. Treasury securities fell after the jobless rate rose less
than forecast and stocks rose on expectations of a rate cut.
Today's jobs and manufacturing reports are the latest to suggest
weakness in the economy. Consumer confidence dropped in October
to a nine-year low, the Conference Board said on Tuesday. Durable
goods orders plunged 5.9 percent in September, the biggest drop
in 10 months, Commerce Department figures showed. Retail sales
fell 1.2 percent in September, the largest decrease since
November, and may stay weak in October because of waning demand
for automobiles.
Auto Shutdowns
``Certainly the market is slower than it was two months ago,''
said Dieter Zetsche, chief executive of DaimlerChrysler AG's
Chrysler unit, in an interview last week. The world's fifth
largest automaker temporarily shut a plant in St. Louis this week
because of reduced demand for the company's vehicles.
Fed policy makers have left the overnight bank lending rate at a
41-year low of 1.75 percent since December. Judging by trading in
fed funds futures, investors are betting the central bank will
lower the overnight rate to 1.5 percent at its Nov. 6 meeting.
The implied yield on the November fed funds contract is 1.54
percent.
The 4 3/8 percent Treasury note maturing in August 2012 fell 3/4
point, pushing up its yield 10 basis points to 3.99 percent. The
Dow Jones Industrial Average rose 121 points, or 1.4 percent, to
close at 8517.64. The Standard & Poor's index of 500 stocks
increased 15 points, or 1.7 percent, to close at 900.96.
Uneven Recovery
The recovery has been uneven. The economy grew at a 3.1 percent
annual rate in the third quarter after growing at a 1.3 percent
pace from April-June and a 5 percent rate during the first three
months of the year. Growth may slow to a 2.2 percent rate in the
fourth quarter, based on the October Blue Chip Economic
Indicators survey.
Companies reduced the number of hours worked to an average 34.1
in October from 34.2 hours in September, another sign of slow
growth. More than half of all industries shed jobs. The number of
people who have been out of work for 27 weeks or longer was 1.66
million, up from 906,000 in October 2001.
``Nobody wants to just hire,'' said Carrie Tuttle, a 31-year old
management consultant in Alexandria, Virginia, who lost her job
at the end of last year and has had five interviews so far.
``I've been looking since the beginning of 2002, so you can see
how bad the job market is.''
Workers' Earnings
The weak demand for labor is also showing up in workers' incomes.
Earnings are up 3 percent over the past year. Average weekly
earnings fell to $507.75 from $508.21 in September. That doesn't
bode well for consumer spending.
The Commerce Department said personal spending fell 0.4 percent
in September, while incomes increased 0.4 percent. Companies say
they expect spending to keep weakening as consumers, worried
about the state of the economy, save more of their additional
income.
``The consumer is exhibiting clear signs of fatigue after
sustaining the economy for so long,'' Joe Liro, an economist at
Stone & McCarthy Research Associates said before the report.
Factories shed jobs for a 27th straight month and manufacturing
employment is now lower than at any time since November 1961.
Manufacturing lost 49,000 jobs in October. Cooper Industries, the
maker of Halo lighting fixtures and Crescent wrenches, said last
month that it would close 10 plants and cut an unspecified number
of jobs in addition to the 2,000 announced in April as it moves
production abroad.
Factory Hours
Manufacturers are also cutting back on worker hours. Factory
hours fell to 40.7 hours, and overtime held at 4.1 hours in
October.
The Institute for Supply Management's production index, a gauge
of work being performed, fell to 49.3, the lowest reading this
year. Inventories declined as did order backlogs, signaling
sluggish demand.
Service-producing companies, which include retailers,
transportation companies and government agencies, rose 70,000
jobs after creating 18,000 a month before. Employment at
construction firms fell 27,000 after rising 11,000. Retailers
added 14,000 positions after eliminating 11,000 a month earlier.
Wholesale companies cut 16,000 jobs after cutting 3,000. A 10-
day shutdown of West Coast ports had no effect on the Labor
Department's data because the employees were back to work the
same week the employment statistics were gathered.
The pool of available workers -- which combines the number of
unemployed job seekers, plus those not looking for work in the
last 12 months who said they would take a job -- fell to 12.7
million in October from 12.8 million in September.
Labor Force
The percentage of the U.S. population holding jobs fell to 62.9
percent in October from 63 percent in September.
Among blacks, the unemployment rate rose to 9.8 percent from 9.6
percent in September. The jobless rate for Hispanics rose to 7.8
percent from 7.4 percent. Unemployment for whites held at 5.1
percent.
For teenagers, unemployment fell to 14.6 percent from 15.7
percent in September. The jobless rate for women rose to 5.2
percent in October from 4.9 percent.
Michael Perelman
Economics Department
California State University
Chico, CA 95929
