Independent Perspective News - News Analysis: Bloom Is on the Economy

By FLOYD NORRIS

One flower may not prove the winter is over, but yesterday's employment report provided a strong indication that the economy is in an accelerating recovery.

The surge in employment was greater than most economists had expected, including gains in October and higher counts than previously reported for both August and September.

"At business cycle turning points, upward revisions are the rule," said Robert J. Barbera, the chief economist of ITG/Hoenig. "You can be pretty confident that the initial estimate for October will be revised upward, as well."

The growth in employment now appears to have begun in August, as tax rebate checks were being received and cashed by millions of American parents. Those checks were the driving force in a surge in retail sales, which provided the demand that seems to have led some businesses to start hiring.

The pickup in the American economy has been mirrored elsewhere. Economic numbers in recent weeks have been better in most industrialized societies. Central banks in Australia and Britain even decided to raise interest rates this week, citing fears that their economies were starting to overheat. And some economists were quick to forecast that the Federal Reserve would soon follow suit, perhaps as early as its January meeting.

To some economists, the surge in growth should not come as a surprise. Both the Federal Reserve, through a sustained campaign to lower interest rates, and the government, through a combination of spending increases and tax cuts, have taken the actions intended to stimulate economic growth.

But there has been so much talk of a "jobless recovery" that some skeptics had concluded that no increase in employment was likely.

And that made the impact of the employment numbers greater than might have been the case otherwise. The Labor Department found there were 270,000 more jobs in October than it counted a month ago when it released the September report.

"The lesson is that macroeconomic policy is powerful, even though it sometimes works with a lag," said Richard Hoey, the chief economist of the Dreyfus Corporation. "The economic cycle is back."

By no means are the current job numbers especially impressive. The government says that 130.13 million Americans were employed in October, fewer than the number working in February of this year and down 1.8 percent — or 2.4 million jobs — from the peak of 132.56 million registered in February 2001.

But the direction seems clear. One statistic compiled by the government is an index of hours worked in the private sector of the economy. Using a three-month moving average to smooth out volatility in the data, that figure is now showing an increase in hours worked for the first time since the end of 2000. It is rising at a 1.1 percent annual rate. At the low, in November 2001 — when the recession officially ended — the number of hours worked was falling at an annual rate of 5.4 percent.

"The number of people working is rising, and the workweek is rising," Mr. Barbera said. "Going from an economy on life support from mortgage refinancings and tax cuts to a self-sustaining recovery requires growing jobs to generate income."

There is not yet conclusive evidence that the economy has made that transition, but the fact that job growth ran ahead of schedule is an indication that it probably is. Retail sales are less impressive than they were when the tax rebate checks were being cashed this summer, but that is to be expected.

One sign of the beginning of a recovery is the rise in the number of temporary jobs. Companies often hire temporary workers when business picks up, since they need help but are concerned that the need may be temporary. The latest numbers show that the economy has gained 286,000 jobs since employment hit bottom in July. Of that total, 19 percent have been in the form of temporary employment.

By contrast, in the final months of the economic expansion that ended in early 2001, the number of temporary jobs was declining even as overall employment was growing. In that case, employers facing weakening demand chose to drop temporary workers first.

The extent to which the recently created temporary jobs are replaced by full-time jobs in coming months will be one clue to whether the recovery is really gaining speed.

The unemployment rate fell to 6 percent in October, down from a peak of 6.4 percent in June but still far above the low of 3.9 percent reached in December 2000. The rate would have gone higher save for the fact that some people dropped out of the labor market, and therefore were not counted as unemployed.

By September, noted John F. Vail, senior strategist of Mizuho Securities USA, just 66.08 percent of the adult population was in the work force, either employed or unemployed. That was a 10-year low, but it ticked up to 66.11 percent in October. "As this number picks up, it will keep the unemployment rate from falling too low, as more people look for jobs," he said.