93,000 jobs lost in August

Concerns raised some posts may be gone forever

By Robert Gavin, Globe Staff, 9/6/2003

US employers slashed payrolls for the seventh consecutive month in August, cutting about 93,000 jobs and leading some analysts to suggest that many of the positions lost during the recent recession will never return.

Despite signs the recovery is gathering strength, the Labor Department reported yesterday that the economy is still losing jobs across a variety of sectors, including manufacturing, business, professional services, and technology. Some economists said the labor market's continued slide, in the face of accelerating production, indicates the economy is undergoing changes that may eliminate many jobs permanently.

The driving forces include globalization, which is sending jobs of all types overseas, and technology-led productivity gains, which allow employers to produce more with fewer workers.

Earlier this week, the Labor Department reported that productivity in the second quarter grew at 6.8 percent annual rate, more than twice the pace of the national economy, which grew at 3.1 percent annual rate.

Analysts say the economy must grow faster than productivity in order to add jobs. Since the recovery began, in November 2001, the United States has lost more than 1 million jobs, on top of 1.7 million lost during the recession. A recent study by the Federal Reserve Bank of New York estimated that up 79 percent of these jobs might be gone for good.

"The old idea that a certain amount of economic growth means jobs is out the window," said Sung Won Sohn, chief economist at Wells Fargo Banks in Minneapolis. "We are talking about a whole different picture, and there's no quick fix."

The continued job losses caught economists by surprise, many of whom had expected employers finally to stop cutting payrolls and add a small number of jobs. Recent economic reports have showed both business and consumer spending on the rise, manufacturing and service sectors expanding, and the number of first-time jobless claims stabilizing.

Economists said there weren't many hopeful signs in yesterday's employment report, but there were a few. Among them: The unemployment rate dipped to 6.1 percent from 6.2 percent in July. In addition, the number of employed declined to 8.9 million from 9.1 million in July, marking the first time the number of jobless has slid below 9 million in three months.

The seeming contradiction between unemployment figures and jobs is due largely to the different methods by which the information is collected. Unemployment data come from a survey of households, while jobs data are collected from employers. Economists generally consider the jobs data to be more reliable.

Still, said Cynthia Latta, principal US economist at Global Insight in Lexington, the improving unemployment situation seems more consistent with the string of positive economic data reported recently.

"It's all a little bit mystifying," she said, "but things might not be as bad as they look."

Other economists said they expect the job market to catch up with the rest of the economy after businesses work out excess capacity left from the bursting of the 1990s bubble, although they concede it is taking longer than they expected.

"This component of productivity is temporary and will fade over time," said Mike Moran, chief economist at Daiwa Securities America Inc. in New York, adding that once it does, economic growth should be sufficient to begin adding jobs.

The stubborn refusal of the labor market to show any signs of improvement continues to worry economists and policy makers, who say a self-sustaining recovery won't be achieved until the economy begins to add jobs. This week, Federal Reserve governor Ben S. Bernanke suggested the Fed might again cut interest rates, already at a 45-year low, if the labor market doesn't begin to catch up with the rest of the economy.

Most economists, however, said they see another rate cut as unlikely.

The study by the Federal Reserve Bank of New York found that interest rate cuts are probably not the medicine needed to help the ailing labor market. The study said many companies that laid off workers during the recent downturn have adapted their operations to produce more with fewer workers and to become more competitive.

Ultimately, new jobs are going to come from new sectors and industries, much as the job growth of the 1990s was driven by new industries that arose from the Internet, said Erica Groshen, one of the study's authors.

"It's going to take time for the dust to settle," she said. "We've had some big changes, and people don't know where things are going."

Robert Gavin can be reached at rgavin@globe.com.