June 16 (Bloomberg) -- U.S. President George W. Bush, German Chancellor Gerhard Schroeder, Federal Reserve Chairman Alan Greenspan and Bank of Japan Governor Toshihiko Fukui all say they want to stimulate economic growth to create more jobs. The Fed has cut interest rates 12 times in two years and may do so again next week. Bush has reduced taxes twice in three years. Schroeder plans to ease laws governing dismissals. The Bank of Japan has tripled monthly bond purchases after cutting rates to zero in March 2001. Yet job markets in the world's biggest economies will probably stagnate well into 2004. Unemployment in the U.S. won't fall for another half-year, based on the median forecast of 52 economists surveyed by Bloomberg News, for instance.
``The labor market remains the weakest link in the economic recovery story,'' said John Ryding, chief market economist at Bear, Stearns & Cos. in New York, in a June 5 message on the U.S. economy to clients. Why? The U.S., Europe and Japan aren't growing rapidly enough to spur companies to hire. In the U.S., productivity gains of 2 percent to 4 percent a year are enabling some companies to expand output for months without adding workers. The fall of barriers to trade and capital over 15 years gives companies the ability to steer new jobs to lower-wage developing countries. At Eaton Corp., the world's No. 2 maker of hydraulic equipment behind Parker Hannifin Corp., Chief Executive Alexander M. Cutler says he sees ``selective signs of a gathering of strength'' in the economy, including rising sales of heavy-duty trucks.
Common Denominator
``Having said that, we think that employment will lag recovery,'' Cutler said. ``I would think that the middle of next year is a time when you're likely to see employment start to tick up and unemployment start to decline.'' Eaton, based in Cleveland, reduced its workforce 19 percent, or 12,000 employees, since 1999, even after adding a few thousand in acquisitions. With economies contracting in Europe, expanding in the U.S. at half the rate needed to create jobs, and stagnating in Japan, the common denominator is persistent unemployment. Joblessness in the U.S. rose to 6.1 percent in May, the highest in nine years. Germany's jobless rate was 10.7 percent, a 4 1/2-year high. France's was 9.3 percent. Japan's 5.4 percent in April was more than double the rates of the early 1980s. All told, 19.4 million people are unemployed in the U.S., Japan, Germany and France, compared with 18.2 million one year ago.
Jobless Recovery in Europe?
When Europe's economy finally starts to expand, it may face the same jobless recovery that the U.S. has had for two years, said David Malpass, chief global economist for Bear Stearns in New York, because growth is likely to be slow, companies have unused capacity and restrictive labor laws discourage new hiring. Japan is expected to grow 1 percent this year, faster than last year's 0.3 percent. ``Such an upturn would be unlikely to reduce unemployment,'' the 30-country, Paris-based Organization for Economic Cooperation and Development said in its global economic outlook in April. In May, the U.S. economy lost 17,000 jobs, bringing to 2.5 million the total eliminated since March 2001, when the last recession started. The past 26 months have been the longest stretch without an expansion in jobs since before World War II, according to the Labor Department. ``Job growth is running behind where it usually has been at this point in previous recoveries,'' Bear Stearns's Malpass said. The U.S. was generating about 100,000 jobs a month by September 1992, the comparable point after the recession that started in July 1990, Malpass said.
Greenspan's Analysis
The ``exceptionally weak labor market'' in the U.S. is ``in large part a consequence of the inability of our economy to grow sufficiently fast -- that is, faster than underlying productivity growth -- in order to get the demand for labor up,'' Greenspan told an international monetary conference in Berlin June 3. ``Only when demand rises on a sustained basis, whittling excess capacity, will firms begin hiring in earnest,'' said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis. ``The economy needs about 150,000 new jobs a month to keep the jobless rate stable. Since the expected employment gains are far below the mark, the jobless rate will continue to rise to about 6.5 percent'' later this year, from 6.1 percent now. Bush has predicted that the $330 billion, 10-year tax-cut measure he signed into law May 28 will lead to the creation of 1 million jobs by the end of 2004, when he faces re-election.
U.S. Growth Rate
The U.S. economy grew at a 1.9 percent annual rate in the first quarter of this year, a little more than half the 3.5 percent that economists say would be needed to bring unemployment down. Some forecasters believe growth will reach that pace by year- end, and it may take months after that for employment to start rising. Productivity growth is enabling U.S. companies to expand sales without hiring more workers. U.S. non-farm business productivity grew at an annual rate of 1.9 percent in the first quarter of this year, the same pace as the economy. From 1996 through 2000, productivity expanded at an average of 2.5 percent a year, up from 1.4 percent from 1973 through 1995. Trigg Copenhaver, chief executive of Virginia Panel Corp. in Waynesboro, Virginia, says his business of making electronic panels for the military has picked up a little in recent months. It hasn't been enough to make him expand his workforce. The 100- employee company has annual sales of about $10 million.
Pause on Hiring
``Only a few months ago, I was beginning to get optimistic about new hiring, but now with all the uncertainty, I'm not making any commitments -- we're on a wait-and-see basis,'' Copenhaver said. ``We're doing what we can to make sure we get our orders filled. Beyond that, we're going to hold up until we can tell how things are going to come out.'' Also sapping jobs from developed economies in North America and Europe is the ability of companies to move work anywhere to cut costs. Friends Provident Plc, a U.K. insurer founded more than 170 years ago by Quakers, said it is cutting costs for processing data by hiring as many as 100 workers in India instead of in the U.K. ``U.K. jobs may be threatened in the future,'' said Ben Gunn, managing director of Friends Provident's life and pension business, in an interview. He said positions in the company's U.K. offices won't immediately be affected. The economies of the 12 countries that share the euro failed to grow at all during the first quarter of this year. Economists surveyed by Blue Chip Economic Indicators this month said they expect the EU's 15 economies to grow by 0.9 percent in 2003 and 2.1 percent in 2004.
Concern in Germany
``There are signs that manufacturing orders may rise slightly in the second half of the year, but not enough to raise the economy from zero growth,'' Martin Wansleben, executive director of Germany's DIHK chambers of industry and trade, told a press conference May 26. Concern over rising unemployment -- and a widening budget deficit caused by increasing welfare costs and dwindling tax revenue -- has spurred Schroeder to press for cuts in German welfare benefits and an overhaul of laws on firing. After winning the support of his Social Democratic Party in a vote this month, he must now push those changes through parliament. ``Voters perceive Schroeder's promises as empty,'' Hans- Juergen Hoffmann, managing director of Psephos, a market research company in Bonn, said in a May 23 interview. ``His policies have done nothing to cure Germany's enduring economic weakness.''
ECB Rate Cut
European Central Bank policy makers, who on June 5 cut interest rates to the lowest since at least 1948 in the dozen countries sharing the euro, say the onus is on governments to promote growth and employment. ``Monetary policy by itself can't solve the problems underlying the weak growth and employment performance in the euro area,'' ECB President Wim Duisenberg told the European Parliament in Brussels on June 12. Laws that discourage more hiring, including restrictions on firing and generous unemployment benefits, may continue to impede job creation in Europe, economists say. Higher unemployment benefits, retirement and medical services, and legal provisions that make it costly for companies to fire workers and thus more reluctant to hire them, also make it hard for Europe to compete for jobs, according to the International Monetary Fund. In its semi-annual World Economic Outlook report last April, the IMF estimated that eliminating such ``labor market rigidities'' could boost economic growth in Europe by about 5 percent and cut the unemployment rate by 3 percentage points.
Strikes and Demonstrations
``The persistence of high unemployment'' in Continental Europe is ``arguably one of the most striking economic policy failures of the last two decades,'' the report concluded. Support for such measures has been limited. In Germany, voter backing for Schroeder's Social Democratic Party rose five percentage points from 25 percent a week ago, a poll by Forsa, a market research company, showed, according to Stern magazine. In France, hundreds of thousands of transport workers have struck and demonstrated over proposed changes to the state-run pension plan that would lengthen the contribution period. In Japan, a banking system crippled by $445 billion of bad loans has starved companies of the credit they need to expand and hire workers. The central bank's purchases of 1.2 trillion yen ($10.2 billion) a month of government bonds from banks haven't stopped a six-year slide in lending. To channel money directly to companies, Governor Toshihiko Fukui said this month that the Bank of Japan would buy as much as 1 trillion yen of asset-backed securities and commercial paper starting in July. Japan's jobless rate also is rising as companies such as Toshiba Corp., a maker of household appliances, and Sanyo Electric Co., the world's biggest maker of mobile-phone batteries, move factories to China to take advantage of lower labor costs. //www.bloomberg.com