By Russell Gold
Staff Reporter of The Wall Street Journal
The job market's seven-month collapse appears to be over, adding to growing optimism about an economic recovery.
In recent weeks, the consensus among economists has been that unemployment would continue to rise, even as economic growth returns. But on Friday, the Labor Department threw a curveball: Employers added 66,000 more jobs in February than they cut, the first gain since July and the most sizable gain since February 2001.
The unemployment rate fell to a seasonally adjusted 5.5% from 5.6%, adding evidence it may have peaked at 5.8% in December. If so, this would run counter to predictions, by the Federal Reserve Board and others, that the rate would reach 6% this year.
Some economists say the Labor Department's numbers are misleading due to one-time factors, such as warm weather and auto workers returning from furloughs, and are subject to revision. There is evidence that unemployment may have stopped rising. Factories are asking their employees to put in longer hours again, a sign that additional hiring is probably not far off. Manufacturing workers, who were among the hardest hit by the recession, worked an average of 40.7 hours a week in February, up from a low of 40.3 in November, the Labor Department reported. Initial claims for unemployment insurance are down, after smoothing out weekly fluctuations, another sign of a stronger job market ahead.
"It looks to me like we have a real genuine turn, and I wouldn't be surprised if 5.8% is a peak," says Mark Vitner, senior economist at Wachovia Securities. Even before the job numbers were released, a slew of recent indicators had economists racing to revise upward their predictions of economic growth. According to the Blue Chip Economic Indicators, a monthly survey of 52 business economists, the U.S. economy is expected to grow by 2% in 2002, up from a consensus forecast of 1.5% last month and 1% in January.
Still, few economists are predicting companies are poised to go on a hiring binge. "Firms are very focused on getting their bottom line up, which means they will go light on hiring and capital spending for a while," says Robert Gay, global head of fixed-income research at Commerzbank Securities. He expects the unemployment rate to remain about 5.5% as a revived economy creates jobs, but the labor force also swells as workers once discouraged by the lack of hiring re-enter the job market. In February, the labor force expanded by 821,000, suggesting this re-entry already is taking place. Other recent data suggest that companies are emerging from the recession more productive than ever and able to get more output without adding workers. Traditionally, the jobless rate continues to increase in the early stages of an economic recovery.