- (Bloomberg) -- The U.S. economy, forecast to expand by
at least 4 percent through the end of this year, may falter in 2004 as
anemic job growth hinders consumer spending.
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- "Until you see job growth, this recovery has to
be considered suspect," said Paul A. McCulley, a managing director
of Newport, California-based Pacific Investment Management Co., which manages
the world's biggest bond fund, with $110 billion. He was hesitant to say
when hiring will increase or by how much.
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- The economy will need to add about 200,000 jobs a month
on average to sustain the current pace of growth, said William Dudley,
chief U.S. economist at Goldman, Sachs & Co. The U.S. has shed an average
56,000 jobs each month this year as companies such as Motorola Inc. fire
workers and others including Eaton Corp. hold off on hiring.
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- "This has been a half-speed economy and now it's
shifting up to three-quarters speed," said David Wyss, chief economist
at Standard & Poor's, the New York-based credit rating firm. "But
unless we get job growth, I don't think it's going to have a lot of legs
to continue growing rapidly."
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- A survey by the National Association of Business Economics
last week showed that 95 percent of corporate economists believe the U.S.
has a chance to add 100,000 jobs during at least one month in the next
two quarters, still below the reading Goldman's Dudley says is needed to
sustain growth.
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- Growth in U.S. gross domestic product may have accelerated
to a 4.5 percent annual rate in the third quarter, almost three times as
fast as in the first quarter, based on the median estimate in a Bloomberg
News survey of 59 economists taken Aug. 28 to Sept. 9. Their mean expectation
for the fourth quarter was for 4 percent annualized growth.
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- 'Weakening'
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- The pickup has been led mainly by consumer spending,
which ultimately depends on job gains. Employment isn't growing because
companies have increased productivity, doing more work with fewer employees.
The Federal Reserve said Tuesday it was concerned "the labor market
has been weakening" and voted to hold its benchmark interest rate
at 1 percent, the lowest since 1958, to spur the economy.
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- "The labor market is not responding to growth in
the economy the way it normally does," Fed Governor Ben S. Bernanke
said at a speech in Washington today. While companies have been reluctant
to expand, "it seems to us at the Fed that some of this gloom is fading,
that firms are more willing spend on capital and expansion; we're hoping
that hiring will come soon."
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- The ability of the U.S. to sustain growth and begin to
add jobs has implications for President George W. Bush, who will seek re-election
in 2004, and for growth in other countries that depend on trade with the
world's largest economy.
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- So far the U.S. has lost 2.7 million jobs since Bush
became president, including 2.5 million in manufacturing. Unlike the so-called
jobless recovery of 1991, the period since the last recession ended in
November 2001 has been one of a "job-loss recovery," Bernanke
said at a Bloomberg News economics forum earlier this month.
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- 'Stop the Bleeding'
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- "We continue to hemorrhage jobs, but the White House
has no plan to stop the bleeding," Senator John Edwards, a Democratic
presidential hopeful from North Carolina, said after the government reported
that the economy shed 93,000 jobs in August.
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- A slowdown in the U.S. would hurt Europe and Japan just
as they are showing signs of a rebound. Their recoveries "are still
very, very fragile," said Howard Archer, London-based economist for
Global Insight Inc., a forecasting firm.
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- The 15 countries in the European Union will expand by
just 0.6 percent this year and 1.8 percent in 2004, based on the median
forecast in a Blue Chip Economic Indicators poll. Japan may grow 1.4 percent
this year and 1.3 percent in 2004, the Blue Chip survey found.
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- Companies such as Eaton, Motorola and DaimlerChrysler
AG are trying to judge whether the economy is growing fast enough to support
demand and the size of their workforces. Some chief executives are skeptical.
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- Chief Executives
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- "We keep hearing the economy is going to get better,
and now I'm not sure we're going to see a pickup even by the end of this
year," Textron Inc. Chief Executive Officer Lewis Campbell told investors
in a conference call Sept. 10.
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- Eaton Chief Executive Alexander M. Cutler sees his company's
business picking up going into the fourth quarter. That gibes with the
Conference Board's report Thursday that said its index leading economic
indicators rose for a fourth straight month.
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- "A foundation is building for a gradual recovery,"
said Cutler, head of the world's second-biggest maker of hydraulic equipment,
from his office in Cleveland. In the next year, orders for heavy-duty trucks
in North America may rise by a third, and Eaton is boosting capital spending
30 percent.
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- Still, Cutler said he isn't planning to step up hiring,
saying there may not be many new jobs until at least a year from now. "Nothing's
on automatic at this point," he said.
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- Gains in Efficiency
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- Other companies are shedding workers to stem losses or
increase productivity amid competitive pressures. Motorola, the world's
second-biggest mobile phone maker, is shedding about 3,000 workers this
year. DaimlerChrysler, the world's fifth-largest automaker, may close or
sell as many as seven parts factories, people familiar with the plans said
last week.
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- CEOs, economists and investors are divided over just
when the U.S. labor market may improve.
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- "Because there have been so many false starts over
the past two years, there's a tendency to doubt that the recovery can be
sustained," said Milton Ezrati, senior economic strategist at Lord
Abbett & Co., a 74-year-old money management firm with $46 billion
in assets. "In truth, job growth always comes later in the cycle,
and it's going to be especially late this time because we've had such strong
productivity growth."
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- Cynthia Latta, principal U.S. economist for Global Insight
Inc., sees U.S. payrolls growing by about 50,000 jobs a month in the fourth
quarter, with new hires increasing to 200,000 a month by the end of the
second quarter of 2004.
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- NABE Forecast
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- "Productivity can't keep increasing at the pace
it has, and therefore businesses will have to start hiring again,"
Latta said in an interview last week.
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- Economists in the National Association for Business Economics
survey released last week forecast that rising demand will prompt companies
to boost hiring. Based on the median of 35 estimates in a poll taken Aug.
22 to Sept. 4, the group predicted that payrolls will rise by 1.2 percent
in the fourth quarter and 1.8 percent in 2004.
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- About two-thirds of those in the survey said the economy
will add 100,000 jobs or more during at least one of the next three months,
and 95 percent said that would happen within the next two quarters.
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- Manpower Inc., the second-biggest supplier of temporary
workers behind Adecco SA of Glattbrugg, Switzerland, said its survey of
16,000 companies found that 22 percent planned to add workers during the
fourth quarter, the first time this year that the survey has pointed to
a strengthening of the job market. The finding "marks a reversal of
the downward trend" in U.S. hiring plans, Manpower Chairman Jeffrey
Joerres said in a televised interview with Bloomberg News.
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- Some Hiring
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- In some industries, a pickup in hiring already is evident.
John Milligan, chief financial officer of Gilead Sciences Inc., said his
company is actively recruiting and is encountering competition for workers.
Gilead, based in Foster City, California, is the third-biggest U.S. biotech
company by market value, behind Amgen Inc. and Genentech Inc.
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- "We're seeing more people with multiple offers,"
Milligan said. "I do sense a growing trend that more people will be
hiring, spending more money, and that bodes well for the economy."
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- U.S. consumer spending and business investment have been
rising, spurred by a $330 billion tax-cut package Bush won from Congress
and by the lowest federal funds rate since 1958.
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- "The critical issue is what happens in the labor
market," said Edward McKelvey, senior U.S. economist at Goldman Sachs
Group Inc. in New York, in a Sept. 4 interview. Without sustained job growth,
"the economy is very much at risk of slowing down as these other stimulants
fade," he said.
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- Only So Long
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- A recent study by the Federal Reserve argues that job
losses this time are likely to be permanent, forcing fired workers to retrain
so they can get positions in other industries and adding to the sluggishness
in the U.S. labor market. That "may help explain the stalled growth
in jobs," the study says.
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- "Many industries are undergoing permanent rather
than cyclical changes," Federal Reserve Bank of Atlanta President
Jack Guynn said in a speech in Florida today. For that reason, public policies
must "support worker retraining and make it easier for people to move
on to new careers."
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- "The expansion is becoming less academic and more
tangible, although folks who are looking for jobs are still waiting to
feel the improvement," Guynn said. "I'll know we are where we
want to be when growth is reflected not just in some statistics but is
felt broadly by the people that drive this nation's economy."
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