Jobs

From Friday's "Evening Wrap" in the WSJ Online:

OK, so maybe the U.S. job market isn't so hot after all.

After weeks of indicators hinting that nonfarm payrolls had added 200,000 jobs or more in January, the Bureau of Labor Statistics said today that employers added just 146,000 jobs in the month. For good measure, the BLS also trimmed its estimates of payroll growth in November and December. In the past three months, monthly payroll growth averaged just 137,000 jobs, significantly less than the average for all of 2004 and possibly not enough to keep up with the natural growth of the labor force. The unemployment rate fell to 5.2%, the lowest level since the fall of 2001, but largely because so few people looked for work. Labor-force participation was the lowest since 1988. Hours worked, a closely watched measure of labor demand, also fell.

Economists were disappointed by the numbers, but some promised better times ahead, saying that the dashboard indicators -- jobless claims, purchasing managers' surveys, etc. -- calling for strong growth in January would prove right eventually. "We suspect that weather-related factors may have helped depress the employment and hours results for January," Morgan Stanley economists David Greenlaw and Ted Wieseman wrote in a note.

But some economists believe it may be time to lower expectations about the labor market, which has for years promised runaway job growth but delivered much less. "It's an old issue in life: if you continue to be disappointed by something in your life, you either change your perceptions or you will continue to be disappointed," said Wachovia Securities chief economist John Silvia. Mr. Silvia believes that structural changes in the economy, including entrenched productivity improvements and a shortage of educated workers, have kept hiring tepid and will continue to do so through 2005.

Meanwhile, however, labor costs for employers continue to rise, along with other rising input costs, pinching profit margins and threatening inflation. That means the Federal Reserve may feel compelled to keep raising interest rates, even though it may have little control over such costs as health care and energy. "The most difficult thing to handicap is how the Fed will react," said Richard Yamarone, chief economist at Argus Research.

(I'm posting it in its entirety because it's not that long and you can't actually read it online unless you subscribe.)