9 October 2002, 09:00 U.S. Economy: Unemployment Rate Is Likely to Rise
/www.bloomberg.com/ By Carlos Torres
Washington, Oct. 8 (Bloomberg) -- Last month's unexpected decline in the U.S. unemployment rate hasn't swayed forecasters who point to other statistics that show the job market will get worse before it gets better.
Falling payrolls and rising claims for jobless benefits are at odds with the September decrease in the unemployment rate. The evidence suggesting a weakening labor market is more compelling and signals a rate in excess of 6 percent by the first quarter of next year, some economists said.
``The drop in the unemployment rate doesn't make any sense to me,'' said Ethan Harris, co-chief U.S. economist at Lehman Brothers Inc. in New York. Harris expects the rate to peak at 6.1 percent in the first three months of 2003 and last month's decline ``just doesn't fit with what we know is happening in the rest of the economy,'' he said.
Unemployment fell over the past two months to 5.6 percent, the lowest since February, the government reported last Friday. None of the 60 economists surveyed by Bloomberg News before the report had forecast a decline.
In September, payrolls fell by 43,000, the first decline since April and the largest drop since February, the Labor Department reported. Figures from state governments show that for the past six weeks the number of Americans filing claims for jobless benefits has topped 400,000, a level economists say is consistent with a deteriorating job market.
The insured unemployment rate, a measure tied to the weekly claims figures, is rising instead of falling. The rate was 2.9 percent for the week ended Sept. 21, up from 2.7 percent the second week of August and the highest since mid-June.
Moving in Tandem
Over 30 years, the monthly unemployment rate and the weekly insured rate have risen and fallen together about 80 percent of the time, according to Gerald Cohen, a senior economist at Merrill Lynch & Co. in New York.
Cohen said he expects the monthly jobless rate to peak in the ``low 6 percent range'' during the first quarter of next year. ``We are going to get some payback for those declines in coming months.''
Stocks rose for the first day in five. The S&P 500 stock index gained 4 points, or 0.5 percent, and the Dow Jones Industrial Average declined 8 points, or 0.1 percent, as of 1:25 p.m. New York time.
Contradictory Views
Figures from the government's monthly jobs report paint contradictory views of job growth, depending on the source of the statistics.
Over the last two months, 1.1 million people got jobs, according to a survey of households, while a survey of businesses showed a 64,000 increase in payrolls, the Labor Department report showed Friday.
The government canvasses about 60,000 households to calculate the monthly unemployment rate and develop a tally of how many people are working. The payroll numbers are calculated by polling 300,000 businesses.
There are a few explanations why there are conflicting signals among the employment statistics and why the two jobless rates may be diverging at this stage of the recovery. One may be related to rising levels of self-employed workers, Harris said. The other may be hiring by small businesses. The household survey alone captures self-employed workers and may be quicker to pick up job growth at smaller companies than the business survey.
Payrolls More Accurate
``So far, I don't see much of anything to get me very encouraged that strong job growth is on the way,'' said Stuart Hoffman, chief economist at PNC Bank Corp. in Pittsburgh. ``In this case, the payroll numbers are a more accurate picture of the strength of the job market than the employment rate. We are more in a jobless recovery like the one following the 1990-1991 recession.''
The unemployment rate will probably peak at an average of 6 percent from October to December, according to the median of 51 forecasts in a quarterly Bloomberg News survey conducted at the end of September.
Companies have few job openings to fill. The volume of help- wanted advertising in major U.S. newspapers fell in August to the lowest level in almost four decades, the Conference Board, a New York-based research group, said last month.
The unemployment rate ``has been statistically quirky,'' in the last few months, said John Ryding, chief market economist at Bear Stearns & Co. in New York, who expects the jobless rate to peak around 6.1 percent or 6.2 percent by March before heading lower. The economy has to generate 100,000 to 150,000 new jobs each month to just keep the jobless rate stable, given the growth in the labor force.
Growth Expectations
The economy is expected to grow at a 2.5 percent annual pace in the last three months of the year, down from an expected 3.5 percent pace in the third quarter, according to the quarterly Bloomberg News survey. For all of 2002, the economy probably will expand 2.5 percent, less than the average 7 percent gains seen in the year following previous recessions.
``That kind of growth just isn't enough to create many jobs,'' said Hoffman.
Other economists are more optimistic about the economy and employment. Growth will probably rise to a 4 percent pace in the final three months of the year leading to an improvement in the job market, said Michael Reynolds, an economist at International Strategy and Investment Group. The New York-based research firm is headed by Ed Hyman, voted the best Wall Street economist for each of the past 22 years by Institutional Investor magazine.
``We see an improving environment for employment,'' said Reynolds, whose firm doesn't forecast the jobless rate. As profits rise and concerns about another recession dissipates, ``the business side of the economy will re-engage and you will see hiring pick up.''
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