Unemployment Drops Slightly in an Uneven Recovery

THE next president will find plenty of people looking for work.

Despite a minor improvement in the September unemployment rate from 7.6 percent to 7.5 percent, there are now some 9,572,000 people searching for jobs.

In a trend which does not bode well for President Bush, 50,000 of those who lost their jobs in September are involved in manufacturing or construction. In August 90,000 additional blue-collar workers were out of a job. A significant number of these workers were involved with defense companies. The main new employer was the service sector - especially health care.

Economists had low expectations for major improvement in the unemployment rate since nearly 100,000 youths lost temporary work when a federal jobs program expired during the month. Some economists had been expecting the numbers to be worse because of this factor.

In fact, the numbers may be showing that the economy as a whole is not worsening. For example, the number of discouraged workers, who are not included in the unemployment numbers, remains at 1.1 million, the same level as August.

"It's not the kind of thrust you expect in a recovery period," says Sam Ehrenhalt of the Bureau of Labor Statistics.

"The auto industry is now scheduling their production to be flat, defense is still shedding workers, the foreign markets have lost their vigor," says Bob Dederick at Northern Trust Company in Chicago.

FOR a regional perspective, New England, the mid-Atlantic states, and California remain mired. The economy is also shaky in the south Atlantic states and the Midwest. The strongest states are Texas, North Carolina, and the Rocky Mountain and Plains states.

Unemployment numbers are watched carefully by the bond markets. If they rise, this is often considered bullish by the market since it might presage a cut in interest rates. However, on Friday the bond market dropped since some traders had been expecting weaker numbers that might result in a further cut in interest rates when the Federal Open Market Committee meets tomorrow. "I think when the Fed meets they will take encouragement from the declining unemployment numbers and keep the federal funds rate [a short-term lending rate] at 3 percent and the discount rate [the rate at which the Fed lends money to member banks] at 3 percent through the election," says Brian Keyser, an economist at CRT Government Securities Ltd.

The next major economic indicator will be the inflation numbers issued in mid-October. However, most economists expect the inflation numbers to remain in check for the next six months or as long as economic activity remains sluggish and unemployment remains high.

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