/www.bloomberg.com/ By Siobhan Hughes
Washington, (Bloomberg) -- U.S. payrolls unexpectedly fell by 101,000 in December and the unemployment rate stayed at 6 percent, capping the first back-to-back years of job losses since the Eisenhower administration in the 1950s.
The decline in jobs last month was the most since February and followed a revised 88,000 drop in November, the Labor Department said. That was twice the number originally reported, and the back-to-back declines were the first in eight months.
``It's a jobless and joyless recovery,'' said Stuart Hoffman, chief economist at PNC Financial Group in Pittsburgh.
President George W. Bush this week proposed a $670 billion plan to end taxes on stock dividends and accelerate income tax cuts, saying it would help create 2.1 million jobs. The economy has lost 1.6 million jobs in the past two years, the first consecutive drop since 1957 and 1958.
December's job report adds new urgency for Congress to act quickly on the plan, Vice President Dick Cheney said. ``While our economy is sound in the fundamentals, it could be growing faster,'' he said in a speech to the U.S. Chamber of Commerce.
The plan likely won't pass Congress for months. ``This is not a policy or a package to try to get the economy going just tomorrow morning,'' Commerce Secretary Donald Evans said in an interview yesterday.
Federal Reserve Governor Edward Gramlich suggested the central bank may lower its benchmark U.S. overnight bank lending rate, already the lowest in four decades at 1.25 percent, to stimulate the economy if hiring doesn't pick up.
``Our mandate is for stable, maximum employment. We take it seriously,'' he said in a speech in New York to the Directors Roundtable. ``If unemployment doesn't drop as the recovery proceeds, we will notice that.''
Market Reaction
Economists had expected payrolls to rise by 20,000 after a decline of 40,000 previously reported for November, based on the median of 55 forecasts in a Bloomberg News survey. The jobless rate was expected to remain unchanged.
Investors largely took the report in stride. Improvement in the unemployment rate generally lags acceleration in growth, and there are increasing signs the economy is picking up. Treasury securities rose following the report.
The benchmark 4 percent 10-year note maturing in November 2012 rose 3/8, pushing down its yield 5 basis points to 4.13 percent at 6:22 p.m. A basis point is 0.01 percentage point. The Standard & Poor's 500 Index was little changed.
``The data can be dismissed as lagged or old, with people generally more optimistic on the future,'' said Peter McTeague, chief bond strategist at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut.
Slower Growth
The 1.6 million job losses in the first two years of Bush's presidency compares with same-period gains of 6.7 million for Bill Clinton and 2.3 million for George H.W. Bush, the current president's father. Payrolls dropped by 2.1 million in the first two years of Ronald Reagan's administration and rose by 8.2 million in the first half of Jimmy Carter's tenure.
The economy has almost 1.8 million fewer jobs than in March 2001, when it slipped into a recession. Many analysts say that unemployment will creep higher this year. The jobless rate continued to climb for 18 months after the previous recession ended in March 1991.
The economy probably grew at an annual rate of 1.4 percent in the final three months of last year, according to today's Blue Chip Economic Indicators Survey of 54 professional forecasters. That's about a third the average 4 percent annual rate of 1996- 2000. The annual rate may be 2.7 percent in the first three months of this year, about half the 5 percent rate in the first quarter of 2002.
Job Losses
So far this month, Alcoa Inc., the world's largest aluminum maker, and AT&T Corp., the biggest long-distance company, have announced plans to cut jobs. J.C. Penney announced today it would cut 2,000 jobs from its catalog business.
``I just don't see any significant job creation until we move further into the year,'' said Geoffrey Somes, an economist at Fleet Bank in Boston. ``There is still a lot of caution there.'' He projects unemployment will peak at 6.1 percent.
Retailers cut 104,000 positions in December, the most in a year, after losing 40,000 a month earlier, as merchants coped with a holiday shopping season in which sales rose at the slowest pace in three decades. Best Buy Co., the largest U.S. electronics chain, closed 110 money-losing Musicland stores last quarter.
Factories lost 35,000 jobs, the 29th straight month of decline in manufacturing employment. Transportation companies lost 27,000 positions, while employment at construction firms rose by 3,000.
Not All Bad News
Some analysts said the job losses aren't all bad news for the economy. The payroll figure was artificially depressed by the Labor Department's seasonal adjustment process, which tried to correct for a surge in hiring that never happened.
``Part of the large drop in retail jobs will be reversed in January as fewer temporary workers are laid off than seasonal factors will expect,'' said Robert Gay, chief economist at Commerzbank Securities Inc. in New York.
In addition, productivity has surged as companies use computers and other equipment to boost worker efficiency. The gauge of how much an employee produces for every hour of work was 5.6 percent higher in the third quarter than in the same three months a year earlier, the largest year-over-year rise since the first quarter of 1973.
Fed officials have said that should set the stage for much stronger growth, while adding in recent weeks that the increase in productivity is restraining job creation.
`Can't Have It All'
``You can't have it all,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. ``When productivity growth is faster than GDP growth, as was the case through the third quarter and presumably in the fourth quarter too, then payrolls and/or hours worked have to fall.''
The private workweek shortened to an average 34.1 hours in December, down from 34.2 hours in November. Average hourly earnings increased 0.3 percent, or 5 cents, leaving earnings up 3 percent over the past year.
Even with little or no job growth anticipated in coming months, few economists predict a deflationary economy. At a meeting of the Council on Foreign Relations, John Lipsky, chief economist at J. P. Morgan Chase & Co., and Maury Harris, chief economist for the Americas at UBS Warburg, said the risk of deflation on a scale of 1-to-10, with 10 being deflation, was ``2.''
``I'm about a 7 where a year ago I was a 3,'' said Stephen Roach, chief economist at Morgan Stanley.
The U.S. report contrasts with strong hiring growth in Canada, where employers added 58,000 workers last month, bringing the 2002 total to a record 559,600 new positions, and the biggest annual percentage gain since 1987. Canada's gains come as its economy is expected to grow faster than others in the Group of Seven Industrial nations this year, according to the International Monetary Fund.