Your Economy (No Politics)

[Bullwinkle]

Jobless Rate Drops to 4-Year Low
Carlos Torres in Washington


Feb. 3 (Bloomberg) -- The U.S. jobless rate fell to 4.7 percent in January, the lowest in more than four years, and employers boosted payrolls and wages, adding pressure on the Federal Reserve to continue raising interest rates.

American employers added 193,000 workers in January, the Labor Department said today in Washington. The economy also created 81,000 more jobs than the government previously reported for December and November, and hourly pay rose 3.3 percent in the last 12 months, the most since February 2003.

Low unemployment signals the economy is expanding quickly enough to use up capacity, prompting investors to increase bets the Fed will keep raising interest rates beyond its next meeting in March. Stocks fell on concern about higher borrowing costs. The job and wage gains helped keep consumer confidence close to a five- month high in January, the University of Michigan said today.

``An unemployment rate below 5 percent is a sign that the job market is getting tight,' said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh. ``These kinds of job and wage numbers will keep consumers spending right into spring.'

The University of Michigan said its final reading on January consumer sentiment was 91.2 after December's 91.5, which was the highest since July.

Services

While there's good news on jobs, higher energy prices and interest rates are beginning to concern companies. U.S. services industries expanded in January at the slowest pace in four months, the Institute for Supply Management said today. The group's index of financial services, construction, retail and other non- manufacturing businesses fell to 56.8 last month from 61. Numbers above 50 indicate expansion.

Economists expected payrolls would rise by 250,000 last month following a previously reported increase of 108,000 in December, based on the median of 76 forecasts in a Bloomberg News survey. Economists also projected the unemployment rate would hold at 4.9 percent. December's payroll gain was raised to 140,000 in today's report and November's increased to 354,000 from 305,000.

The implied yield on the June federal funds futures contract, which includes the March and May FOMC meetings, rose to 4.85 percent today from 4.825 percent yesterday. The Standard & Poor's 500 Index fell 6.8 points, or 0.5 percent. The U.S. Treasury's benchmark 10-year note rose, pushing down the yield 3 basis points to 4.53 percent at 4:07 p.m. in New York.

Bush

The economy added 1.98 million jobs last year, down from 2.1 million in 2004, according to revised data included in today's report. President George W. Bush this week tried to shore up support for his economic programs with his State of the Union speech. By a 59 percent to 37 percent margin, Americans disapprove of the way Bush is handling the economy, according to a Bloomberg/Los Angeles Times poll last week.

The jobs report is ``excellent, excellent news,' Treasury Secretary John Snow said in an interview from Charlotte, North Carolina. ``What we see here is strengthening in the labor markets that's very promising for rising incomes and very promising for continuing GDP growth.'

With a possible slowdown in real estate in 2006 after a record year in 2005, job creation is that much more important this year, economists said. Income gains may tip the balance between a modest deceleration in consumer spending in 2006 or a more pronounced slowdown that will cause the economy to stumble.

``If we do get a housing slowdown, job growth is there to support a relatively decent pace of consumer spending,' said Jay Feldman, an economist at Credit Suisse in New York. ``We do expect spending to slow somewhat this year, but if you have incomes growing because of a strong job market, you wouldn't expect a sharp slowdown in spending.'

Warmer Weather

The housing boom accounted for about 25,000 more jobs a month last year, according to a report by Maury Harris, chief economist at UBS Securities LLC in Stamford, Connecticut.

Employment in service-producing industries, which include retailers, banks and government agencies, rose 135,000 last month after rising 131,000 in December, the report showed. The increase was led by education and health services.

Warm weather helped builders in January, and the economy added 46,000 construction jobs after a 5,000 gain in December. Last month was the warmest January in 112 years, according to Weather Trends International, a Plymouth Meeting, Pennsylvania-based weather consulting firm.

Because of the warm weather, ``it's not going to be easy to unravel the extent to which strong January payrolls reflect temporary influences as opposed to underlying strength,' said Robert Mellman, an economist at JPMorgan Chase bank in New York.

Manufacturing

Manufacturers added 7,000 jobs last month, after cutting 1,000 positions in December. Factory orders rose for a third month in December, the Commerce Department said today. Bookings rose 1.1 percent after a 3.3 percent rise in November. Demand increased for automobiles and industrial machinery.

Incomes increased last month. Workers' average hourly earnings rose 0.4 percent, or 7 cents, matching the previous month's percentage gain. Economists predicted a 0.3 percent increase in hourly wages. Average weekly earnings rose to $554.66 last month from $552.29 in December.

``This is a number where the Fed is comfortable about the nonfarm payroll numbers, but it's got to be wondering about the inflationary consequences,' said Roger Kubarych, senior economist at HVB America Inc. in New York, in an interview. ``The thing that the Fed has got to look at is this average hourly earnings number.'

Federal Reserve

Fed policy makers raised the benchmark U.S. interest rate this week, saying high fuel prices and lack of spare capacity threatened to stoke inflation. Policy makers next meet on March 28, the first gathering under Ben S. Bernanke, who took over as Fed chairman this week after Alan Greenspan retired.

The quarter-point increase to 4.5 percent was the 14th in a row by the Federal Open Market Committee.

Weather aside, other surveys suggest hiring is improving. Consumer confidence rose last month to the highest level since June 2002 as the percentage of people finding jobs plentiful was the highest since the September 2001 terrorist attacks, according to a report this week from the New York-based Conference Board.

``The economy continues to get better from here,' Richard Schnieders, chief executive officer of Sysco Corp., North America's largest distributor of food to restaurants, said in a Jan. 30 interview. The Houston-based company has added about 3 percent, or several hundred workers, to its sales force in the first half of its fiscal year which ends in June ``and our plans are to add an equal amount for the second half of the year,' Schnieders said.

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