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January 5, 2001

U.S. Unemployment Remains Low But Job Growth Slows
By Peronet Despeignes, The Financial Times

Inflation And Recession: A One-Two Punch to Economy ... Weiss comments

WASHINGTON - The US unemployment rate remained near 30-year lows in December, defying fears of a sharp surge in joblessness amid the slowing economy, but job growth was anemic, the Department of Labor said on Friday.

The official jobless rate in December was unchanged from November's 4% - close to a 30-year low of 3.9%.

Job growth was weak as nonfarm payrolls rose 105,000 last month following November's downwardly revised 59,000 gain.

The figures were significantly below the monthly payroll gains of around 200,000 that were typical a year ago, and much of December's gain came from a sharp increase in government jobs. Private-sector payroll growth slowed from 111,000 in November to 49,000 in December.

Stunted by the economic slowdown and persistent worker shortages, US job growth over the past year has fallen to its slowest rate in almost eight years. In the year to December, total employment has grown only 1.47%, the lowest level since January 1993.

December's job gains were reduced by continued layoffs in the beleaguered manufacturing sector, but there was support from sustained job growth in the service sector.

A worrying inflationary sign to some was the continuing rise in average hourly earnings, adding a surprisingly high 0.4 per cent in December to $14.01.

This is exactly the scenario that we've been telling you about for the last few months. The unemployment rate continues to hover near its 30-year low, and wages continue to inch higher every month, along with other prices ranging from fuel to food. At the same time, though, the economy is braking so quickly that the skid marks are visible on the road.

The reality is that the slowdown in the economy is outpacing employment growth. Layoffs have already begun in several industries -- dot-coms, autos, retail, and manufacturing -- and will spread to other industries as the economy tumbles into recession. Wages, though, have continued to tick up because of increasing numbers of employees demanding salaries in lieu of worthless stock options, and competition for the small number of available skilled workers. Higher wages, coupled with high energy prices and a dearth of demand, have eroded company earnings for the last three quarters and will continue to do so. The fierce inflationary pressures that we have seen develop over the last few months are bringing one company after another to its knees. That's why 700 U.S. companies are likely to fall short of analysts' estimates for fourth-quarter earnings -- more than twice last year's figure, according to a report from First Call/Thomson Financial Corp..

There's a word for inflation combined with a stagnating economy: "Stagflation." The ugly economic specter that made the '70s such tough going about to rear its ugly head again.

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