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2004-01-09 --Drop in unemployment  is drop-off of discouraged workers

Wall Street stocks sank and the Dow Jones average fell more than 130
points today after the U.S. Labor Department reported that nonfarm
payrolls expanded by only 1,000 jobs in December, far short of the
150,000 new jobs many economists had projected and in sharp contrast
to the gains registered in previous months.  ...  Nonfarm payrolls
continued to expand in the temporary help, construction, business
services and health care industries. However, gains in those sectors
were overwhelmed by a drop in the retail trade - down 38,000 - and
declines in the long suffering manufacturing field, which shed 26,000
jobs. For the year, manufacturing payrolls lost 516,000 jobs, bringing
total losses in that sector to 2.8 million jobs since July 2000.  (Los
Angeles Times, 1-9-04)



Reuters,  January 9, 2004

Discouraged job-seekers mask true US jobless rate


By Andrea Hopkins

WASHINGTON, Jan 9 (Reuters) - For U.S. President George W. Bush and
his economic team, Friday's news that the U.S. jobless rate fell to
its lowest level in more than a year must have looked heartening -- at
first.

But a closer look at the Labor Department report told a far bleaker
story, with 433,000 Americans categorized as "discouraged workers" --
those who have given up looking for a job because they have abandoned
hope of finding one.

In December alone, Labor statisticians dropped 309,000 Americans from
the labor force, no longer counting them as unemployed because they
have stopped looking for work. That cut the participation rate to just
66 percent, a level not plumbed since recession-plagued 1991.

Economists believe the drop in the labor force masks a much higher
jobless rate -- perhaps as high as 9 percent, according to Anthony
Chan, chief economist at Banc One Investment Advisors in Columbus,
Ohio.

"The decline in the unemployment rate is the most misleading aspect of
this employment report," said Chan. "It's a sham because of how we got
 there -- the labor force dropped precisely because more people became
discouraged."

Usually, out-of-work Americans rejoin the job hunt as the economy
strengthens, believing growth will spur hiring. But despite more than
two years of expansion since the end of the 2001 recession, America
remains locked in a jobless recovery and the labor force is falling,
not rising.

NOT BUYING THE HYPE

Wells Fargo chief economist Sung Won Sohn said all the talk lately
about the booming economy and rising stock market did little to
persuade employers or job-seekers that their prospects were picking up
as 2003 drew to a close.

"Despite all the hoopla, neither businesses nor potential employees
have confidence in the economy. They're not believing all the stories
about a strong and healthy economy given by the economists and the
government," Sohn said.

"Economic growth is great, but the job market is lousy."

While the economy raced ahead at an annual rate of 8.2 percent in the
third quarter of 2003 on the back of Bush's summer tax cuts and a
booming housing market, job growth remains tepid. Since July, 278,000
nonfarm jobs have been created -- paling in comparison to the 2.3
million lost since Bush took office.

Sohn said many of the discouraged workers are likely refugees from the
factory sector, where 2.8 million jobs have been cut in 41 straight
months since the industry's last peak in July 2000. With many jobs
gone forever to cheap-labor countries like China or India, workers
have little hope of finding work that can compare with the $20-an-hour
jobs they lost, Sohn said.

"People who lost jobs in manufacturing, especially some of the older
workers, they look at the landscape and say, 'why should I waste my
time?' And they simply drop out of the labor force," Sohn said.

Copyright 2004, Reuters News Service

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Increased Gross Domestic Product recovery powered by employees working
faster, not by more employees workering.

Reuters, January 9, 2004


Jobs tally reveals underbelly of U.S. productivity


By Pedro Nicolaci da Costa

NEW YORK, Jan 9 (Reuters) - The latest report on the U.S. jobs market
has once again highlighted the dark side of American productivity:
firms have become so efficient that they require fewer workers to get
the job done.

That may be great news for the stock market, as companies slash labor
costs and enhance corporate profits. But try telling that to the more
than 8 million unemployed U.S. workers.

For them, the reality of productivity is stark: Hundreds of thousands
are throwing in the towel after months of frustration with
never-ending search for work.

The economy produced a minuscule 1,000 jobs last month, the Labor
Department reported on Friday, far below rosy forecasts on Wall Street
for a 130,000 increase.

The unemployment rate did fall to 5.7 percent from 5.9 percent, but
that was more due to discouraged job-seekers leaving the labor pool
than to any sort of hiring spree.

"The decline in the unemployment rate is, ironically, a sign of
weakness," said Cary Leahey, senior U.S. economist at Deutsche Bank.
"The only reason it declined is that fewer people were looking for
jobs in December."

The lack of job creation in December is all the more worrying since
most economists were looking to this report for confirmation that the
recovery was finally sustained enough to boost employment.

Gross domestic product grew an astounding 8.2 percent in the third
quarter and is expected to have closed out the year with another three
months of solid expansion.

And a string of economic releases in recent weeks had not only
corroborated evidence of growth but also pointed to the beginnings of
a jobs boom.

Now, faced with such disappointing labor numbers, economists find
themselves in the difficult position of explaining away a
still-jobless recovery. The only possible culprit, they contend, is
productivity growth beyond anyone's wildest dreams.

"The only way that you can justify the weakness in payrolls over the
last three or four months with the strength in the economy is an
absolute boom in productivity, but disturbingly strong productivity
growth," said Christopher Low, chief economist at FTN Financial.

"It's so strong that 8.0 percent GDP growth just isn't enough to
generate jobs."

That presents a challenge not only for economic forecasters but also
for officials at the Federal Reserve, who are in charge of steering
the nation back to a sustainable growth path -- ideally one that can
lead Americans back to work.

Fed Governor Ben Bernanke, the most influential figure at the U.S.
central bank after its chairman, Alan Greenspan, has said growth that
is based solely on productivity gains and not accompanied by job
growth may require lower, not higher, interest rates in the short-run.

But with official rates already at 45-year lows, and the economy
already growing at its fastest clip in 20 years, how much can another
interest rate cut really do to create jobs? The answer, according to
some economists, is not much at all.

Copyright 2004, Reuters News Service