Jump in jobless claims a concern
Compiled from Times wires
© St. Petersburg Times, published May 4, 2001
WASHINGTON -- New claims for unemployment insurance climbed last week to their highest level in five years, the Labor Department reported Thursday, and economists believe the pain will grow in the months to come.
The number of workers filing new claims for state jobless benefits rose 9,000 to a seasonally adjusted 421,000 for the week ended April 28. That's the highest level since March 1996. The more closely watched four-week average, which irons out weekly variations in the claims, hit 404,500, the highest level since October 1992.
The figure "is worrisome because it is now at levels that in the past were associated with fairly significant economic weakness," said economist Clifford Waldman of Waldman Associates.
"It tells me we're probably not going to have that hoped-for snapback in economic growth in the third quarter of the year," Waldman said.
On Wall Street, the jobless report increased investors' anxiety about the economy. The Dow Jones Industrial Average closed down 80.03 points at 10,796.65, after being off more than 148 points earlier in the session. The tech-heavy Nasdaq Composite Index dropped 74.40 to 2,146.20.
With the unemployment picture expected to worsen in the months ahead, some economists worry that consumers might really tighten the belt on spending, something that would further weaken the struggling economy. Consumer spending accounts for two-thirds of all economic activity and has been a major force in keeping the economy afloat during the economic slowdown that started in the second half of last year.
The report gives the Federal Reserve further incentive to cut its benchmark short-term interest rate at its May 15 meeting. The Fed has cut the rate from 6.5 percent to 4.5 percent this year to boost the economy.
The weakening job market, which initially was concentrated in the automobile industry and other traditional manufacturing industries, has spread to high-tech firms and is affecting investment banks and some retail stores. Employment has held up so far in construction, with demand for new homes and commercial buildings remaining surprisingly healthy.
Firms announced 165,564 layoffs in April, the highest number recorded by the employment firm Challenger, Gray & Christmas since it began its monthly compilation of layoffs eight years ago. The largest number of layoffs was among telecommunications companies, which announced 26,464 job cuts.
"We're still going to have some bad employment months," said Diane Swonk, chief economist at Bank One.
Analysts now expect the April unemployment rate, which the Labor Department will release this morning, to rise to 4.4 percent from March's 4.3 percent.
"There are a lot of consistent pieces of evidence that the job market is sputtering," said Stuart Hoffman, chief economist at PNC Financial Services Group, a Pittsburgh bank.
So far, the economy appears to be in a stall but not in a recession, in which the economy shrinks. But even if the economy begins to recover, the jobs picture probably will worsen for several months. Layoffs take place over time, so their impact will continue to be felt. Also, companies generally hold back on rebuilding their staffs until they are confident a recovery will last.
"The economic slowdown is increasingly broad-based compared to six months ago, when it was isolated in the traditional manufacturing sectors," said Mark Zandi, chief economist at Economy.com, a consulting firm in West Chester, Pa. "More recently, it has engulfed information technology and financial services. We're even seeing some weakening in retailing and wholesale."
As a result, the job losses, once mainly in the manufacturing-heavy Midwest and Southeast, are reaching new regions such as the West Coast and the Northeast. Conversely, unemployment claims in Michigan, which had many of the early job losses, fell by 8,000 one recent week.
"At first, it was very spotty," said Mark Vitner, an economist at First Union Corp. "Now, it's getting harder to find places that are not being impacted."
- Information from Knight Ridder Newspapers and the Associated Press was used in this report.
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