US job picture brightens, but it's not likely to boom

The great American job machine has started firing again. But don't expect it to zoom ahead any time soon.

Despite real growth in the economy at a 7.2 percent annual rate in the summer quarter, most economists see only a gradual reduction in unemployment in the months leading up to the 2004 fall election.

"Better, but still tough," says Allen Sinai, chief economist of Decision Economics Inc., an economic consulting firm in Boston.

The creation of more new jobs should cheer up those seeking work - and perhaps even help President Bush keep his job in the White House. But there is concern the nation's job machine may have lost some of its zip - permanently - because of changing business practices.

The latest statistics are encouraging. In October, the economy added 126,000 new jobs, the Labor Department reported Friday. September's increase in private-sector payroll jobs was revised up to 125,000.

But earlier last week, Challenger, Gray & Christmas, Inc. noted that employers announced plans to eliminate 171,874 jobs in October, the largest monthly job cuts in a year. So far this year, announced job cuts exceed 1 million, a rate close to that for the last two years, the international outplacement firm finds.

Large layoffs plus solid economic growth mostly explain a big jump in productivity in the third quarter. Output per man-hour rose at an 8.1 percent rate, the best since early 2002.

For the unemployed, this isn't good news - at least in the short run. It means business needs fewer new workers to tackle an upturn in orders. As a result, most economists expect only a modest drop in the unemployment rate by election time.

Mr. Sinai estimates 5.7 percent of the labor force will be jobless at mid-2004, down from 6 percent in October.

Cynthia Latta, an economist at Global Insight, a consulting firm in Waltham, Mass., is less hopeful. She sees a 5.8 percent jobless rate by the end of 2004.

One reason for this slow decline is that the economy must create at least 150,000 net new jobs each month to absorb the new workers joining the labor force as the population grows.

Another reason is what Lawrence Mishel, president of the Economic Policy Institute (EPI), a liberal think tank in Washington, calls the "missing labor force."

In addition to the 8.8 million officially counted as unemployed, another 1.6 million people have withdrawn from the labor force. About 462,000 are so discouraged by poor job prospects, they no longer seek work. As the economy picks up and help-wanted ads multiply, some of those workers may again look for jobs.

Most economists expect annual economic growth to retreat from the third quarter's sizzling rate to about 4 percent. "The US and the global economy have turned from low growth to a significantly higher rate," Sinai says.

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