By Neil Irwin
Washington Post Staff Writer
Saturday, May 3, 2008
The unemployment rate edged down in April and employers cut far fewer jobs than expected, according to a government report yesterday, the latest evidence that the U.S. economy is undergoing a mediocre spell, rather than a disastrous downturn.
The report was hardly rosy -- there were 20,000 fewer jobs in April than in March. But the employment numbers, coupled with a reading on the gross domestic product this week and other recent data, have cheered economists and traders in financial markets. The numbers suggest that the worst scenarios envisioned for the economy this year -- of a severe recession -- are not coming true.
"The economy is weak, there's no doubt about that," said Eugenio Aleman, a senior economist with Wells Fargo. "But it's not going to collapse."
The Labor Department reported that the unemployment rate fell to 5 percent, from 5.1 percent, as there were 189,000 fewer people who did not have a job but were looking for one. And the 20,000 net job losses seemed like good news, given that economists had forecast losses four times as big.
Construction and manufacturing shed a combined 107,000 jobs, continuing a horrid year for workers in those sectors. With consumers facing higher prices for staples such as food and energy and less wealth from their homes, retailers cut back as well, shedding 26,800 positions.
But those losses were partly offset by other sectors that kept hiring, soft economy notwithstanding. The professional and business services sector added 39,000 jobs, and education and health-care employers added 52,000 positions. Even the finance sector, which includes decimated mortgage and real estate firms, added 3,000 net jobs.
On Wednesday, the Commerce Department reported that the gross domestic product, the broadest measure of a nation's economic output, rose at a 0.6 percent annual rate in the first quarter. That is well below the nation's growth potential, but it signaled that the economy may not be contracting, as many economists had thought.
The Dow Jones industrial average initially rallied on the jobs report but ended the day up a modest 48.20 points. Stock prices are up 10.8 percent from their recent low March 10 and are at their highest level since Jan. 3, as measured by the Standard & Poor's 500-stock index.
Many economists think conditions will improve in the second half of the year, as people start to spend their government stimulus checks, which are being mailed starting this month, and as the effects of Federal Reserve's interest rate cuts take hold.
However, even if the downturn continues not to be terribly deep, there is no guarantee it will be short. That's because this is not an example of a traditional economic cycle, in which businesses expanded too much, built up too much inventory and must have those excesses washed away before they can grow again.
Rather, it is driven by a bubble in prices for housing and other assets. The previous such downturn, which accompanied the popping of the dot-com bubble in 2001, was a mild recession by the traditional definition, but job growth remained nonexistent or weak for years.
"This may not be a sharp recession, but it could go on for a while," said David Shulman, senior economist at the UCLA Anderson Forecast.
During a stop in St. Louis on the way to his ranch in Crawford, Tex., President Bush told business and community leaders that the benefits of the stimulus plan adopted in February are only beginning to be felt. Tax rebate payments that make up the centerpiece of the plan began appearing as direct deposits in bank accounts this week, he said.
"Since I've been president, I want to remind you that we've been through recession, we have been through a terrorist attack, we have been at war, we've had corporate scandals, we have had major natural disasters, and yet this economy always recovers," he said. "We are a resilient economy."
Democrats voiced a less sunny view. "These numbers are not as bad as they might have been, but for the administration to believe this gives them a green light for their laissez-faire, do-nothing policies would be a huge mistake," Sen. Charles E. Schumer (D-N.Y.), chairman of the Joint Economic Committee, said in a statement. "The fundamentals of this economy are not very strong, and too many Americans are still losing their jobs every day."
Part of the reason the economy is holding up better than many analysts had forecast is that financial markets have been functioning in a more orderly manner. To try to encourage that healing, the Federal Reserve yesterday expanded a program aimed at encouraging banks not to hoard cash.
The Fed increased the size of its every-other-week "term auction facility," which essentially shovels cash into the banking system, to $75 billion from $50 billion, and expanded a lending program with the European Central Bank and the Swiss National Bank, aiming to get the same effect for banks overseas.
The Fed also said it will take more types of assets as collateral at a special lending window, such that investment firms can now trade high-quality securities based on student loans for cash. Congressional leaders have pushed for the Fed to take action to bring stability to the market for student loans, and accepting these securities as collateral could do that.
Staff writer Sandhya Somashekhar, traveling with Bush, contributed to this report.