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December 28, 2000

U.S. Unemployment Growth Slows
By Peronet Despeignes, The Financial Times

Business Squeezed by Scarce Workers and Tight-Fisted Consumers ... Weiss comments

WASHINGTON - Demands on state unemployment insurance coffers in the US abated somewhat last week, supplying a preliminary sign that the US unemployment rate may not be rising as sharply as some fear.

The Labor Department said on Thursday initial claims on unemployment insurance - commonly known as jobless claims - fell by 23,000 to 333,000 in the week ending December 23 from 356,000 in the week ending December 16.

The biggest declines in initial claims over the past week occurred in North Carolina, Ohio, Pennsylvania and Georgia and the biggest increases in Oklahoma, Colorado, Virginia and Iowa.

The weekly report on jobless claims has taken on added significance over the past few weeks as an early, if volatile, indication of where the unemployment rate may be headed as the US economy continues to slow from its heady pace earlier this year.

For the past seven months, the four-week moving average of jobless claims has been rising at the fastest pace since the 1990-1991 recession toward levels not seen in two years. At least one economist took last week's reversal as an early sign that jobless claims may have stabilized.

The unemployment rate has hovered near its 30-year low for the entire year. And the latest data indicates that it's not going to budge from that level for quite some time. But, the economy continues to slow -- consumer confidence reached a new low for December signaling a deeper slowdown in demand to come and stock prices sink lower and lower as a different company releases a missed earnings report every day.

So what does that mean? It means people have jobs, but they aren't willing to spend any more money. And, if they're smart, they certainly won't sink any more of their hard-earned money into the stock market.

But, this doesn't mean that jobless claims have stabilized and that the threat of recession has ended. Right now, businesses have cut back investments in technological improvements. Next year, investment in communications, computers and software is expected to rise just 12%, compared to a 22% increase this year and a 26% leap in 1999.

Less investment in technology means businesses can't count on increased worker productivity to boost production. But the tight labor pool means wages will still increase, and increased wages mean less profits.

The low unemployment rate will add to the already existing inflationary pressures of high energy prices. And inflation will drive demand down at an even faster rate -- sending the economy into a recession.

That's when wage pressures will ease -- but it will be too late to save businesses already reeling from one economic hammer blow after another.

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