A Justice Site
CSUDH - Habermas - UWP - Archives
California State University, Dominguez Hills
University of Wisconsin, Parkside
Soka University Japan - Transcend Art and Peace
Created: March 1, 2003
Latest Update: March 1, 2003
Backup of Tight U.S. Job Market Adds to Jitters Among Consumers
By Alex Berenson
SOURCE: New York Times
Copyright: New York Times Company
Included here under Fair Use Doctrine for teaching purposes.
March 1, 2003
Tight U.S. Job Market Adds to Jitters Among Consumers
By ALEX BERENSON
Americans are now more worried about their job prospects than at any time since 1993, raising the risk that consumer spending, the cornerstone of the economy, will slow even if the United States quickly resolves its standoff with Iraq.
Concern about the job market is only partly reflected in the unemployment rate, which fell to 5.7 percent in January from 6 percent in December. Each month, the Conference Board, a private research group, asks people whether they view jobs as plentiful, not plentiful or hard to get. In February, 11 percent of people said jobs were plentiful, while 59 percent said they were not plentiful and 30 percent said they were hard to get, the group announced this week.
Those are the bleakest assessments since December 1993, and a sharp decline since President Bush took office two years ago. Then, 49 percent of Americans viewed jobs as plentiful, while 38 percent said they were not plentiful and only 13 percent said they were hard to get.
Those estimates probably reflect the reality of the job market as well as or better than the unemployment rate does, said Stephen S. Roach, the chief economist at Morgan Stanley . Respondents may not know the inflation rate or the size of the federal budget deficit, but most people intuitively sense whether jobs in their field and their city or state are hard to come by, Mr. Roach said.
The United States has lost more than two million jobs since March 2001, the worst slump in the last two decades, according to statistics from the Labor Department.
Broad measures of consumer confidence have also plunged in the last two years. Yesterday, the University of Michigan said that its consumer sentiment index had fallen to its lowest level since September 1993. Still, many forecasters discount the impact that general consumer confidence has on spending. Except for the richest Americans, most people spend almost every dollar they make, whether they are feeling confident or not.
But simply ignoring consumer confidence is a mistake, Mr. Roach and other economists argue. Overall consumer confidence does not much affect spending, they said, but the perception people have of their job security does.
"The minute they become apprehensive about their jobs, which is the primary source of income, it tends to produce a curtailment in spending," said Lynn Franco, director of the consumer research center at the Conference Board. "The labor market must improve to build a sustainable recovery."
If the United States quickly defeats Iraq or ousts Saddam Hussein, broad measures of consumer confidence may soar, Mr. Roach said. But if people continue to perceive jobs as difficult to come by, they are likely to cut back on discretionary spending even if they claim they are generally more confident, he said.
"If we win a war, confidence will soar, the stock market will rally, it'll look really nifty, but will it change the underlying fundamentals in the U.S. economy?" he said. "I don't think so."
As a result, the economy, which grew about 1.4 percent in the fourth quarter, according to a revised report released yesterday by the Commerce Department, is at risk of slipping back into recession for the second time in three years, said Douglas R. Cliggott. Mr. Cliggott, the chief executive of Brummer & Partners, a Swedish money manager, said the labor market appeared to be weakening. Initial unemployment claims rose steadily in February after staying flat for months, he said.
Since the technology stock bubble burst in 2000 and business investment plunged, consumer spending, which accounts for almost 70 percent of all economic activity, has largely carried the economy. Even with unemployment rising and wages hardly increasing, low interest rates have encouraged individuals to keep spending, especially on new homes and cars.
But even if interest rates stay low, the weak job market could leave consumers increasingly fearful of making big commitments.
Anxiety about the job market may become a self-fulfilling prophecy, economists say. If consumers cut back on spending, companies will have to cut production and lay off more workers, further depressing confidence and damping the economy. Eventually, of course, new technologies and rising productivity will spur new investment and hiring by businesses and demand will rise again, but that process could take years.
Mr. Roach said the situation reminded him of January 1991, just before the gulf war began. The Conference Board's survey showed then that 11 percent of consumers thought jobs were plentiful, 56 percent thought they were not plentiful, and 33 percent thought they were hard to get — percentages similar to those today.
After a coalition led by the United States easily defeated Iraq in the gulf war, consumer confidence soared. The Conference Board's general confidence index rose to 81.1 in March 1991 from 59.4 in February, its biggest increase ever.
But that increase did not translate into a change in consumers' perceptions of the job market, which steadily worsened as the economy grew weakly and many big companies announced mass layoffs. By February 1992, only 4 percent of consumers said jobs were plentiful, while 47 percent said they were not plentiful and 49 percent said they were hard to get — the worst figures since 1982.
In November 1992, the first President Bush lost his bid for a second term. "Jobless prosperity — that's what cost George Bush No. 1 his job, and it's sort of ironic that his son is facing the same thing," Mr. Roach said.
Smaller businesses are also cutting back on hiring. In a survey by the National Federation of Independent Businesses, only 8 percent of small businesses said they were planning to expand in January, down from 12 percent a year earlier and 16 percent in January 2001. Just 19 percent said they had one or more jobs open, the same level as a year earlier but down from 31 percent in January 2001.
Michael P. Niemira, a vice president of Bank of Tokyo-Mitsubishi, was slightly more optimistic. Hiring tends to trail the business cycle, because companies do not want to take on new workers until they are sure the economy is expanding. And consumer perceptions of the job market also tend to lag behind the actual strength or weakness of the market.
So it is possible that the economy and job market are stronger than consumers understand, Mr. Niemira said. He expects the economy to grow 2.3 percent this year.
Still, Mr. Niemira said the United States could easily slip into recession, especially if oil prices remain near $40 a barrel. "I'm worried about the direct impact of higher oil prices on spending," he said. "I'm very concerned in the short term."
Copyright 2003 The New York Times Company