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Jobless rate drops to 4-1/2-year low
Fri Feb 3, 2006 2:09 PM ET
By Glenn Somerville
WASHINGTON (Reuters) - The U.S. unemployment rate fell to its lowest level in 4-1/2 years in January as employers hired 193,000 new workers, the government said on Friday in a report revising up job growth for the preceding five months.
The jobless rate dropped to 4.7 percent from 4.9 percent in December, the Labor Department said.
The closely watched report reflected a relatively vigorous labor market and fanned concerns that interest rates were headed higher to keep inflation in check.
Federal Reserve policy-makers raised short-term rates for a 14th straight time on Tuesday, bringing the federal funds rate to 4.5 percent, but the jobs report left analysts convinced the U.S. central bank was not yet finished.
"It's much more likely now, I think, that the Fed will raise the fed funds rate to at least 5 percent," said Edgar Peters, chief investment officer for PanAgora Asset Management in Boston.
Stock prices fell on the prospect of stiffer credit and borrowing costs and U.S. Treasuries traded mixed, while the dollar rose against other currencies.
The jobs report was one in a deluge of economic data on Friday that offered a mixed view of the economy's prospects.
The Commerce Department said factory orders rose 1.1 percent in December on strong demand for machinery and costly durable goods. But a service-sector index from the Institute for Supply Management eased to 56.8 in January from 61 in December, implying slower growth in businesses like restaurants and hotels.
OIL A WORRY Got to give Reuters their due, getting this spin in.
A third piece of data, the University of Michigan's final January index of consumer sentiment, showed confidence flagged in January as high oil prices and a slowdown in overall economic activity in the final months of 2005 took a toll.
Gross domestic product grew at a surprisingly modest 1.1 percent annual rate in the fourth quarter, though it expanded by 3.5 percent for the full year 2005.
The labor market has shown signs of strength in recent months but the report showed that there were fewer jobs generated in 2005 as a whole than previously thought. Job growth totaled 1.98 million in 2005, 43,000 fewer than previously estimated, once the department's annual benchmark revisions of the data were applied.
Bush administration officials hailed the jobs report as confirmation the economy was robust.
"I am confident that we will remain on a good path and expect to see rising employment and wages in the months ahead," Treasury Secretary John Snow said in a statement.
Economists had forecast creation of 240,000 jobs in January and an unemployment rate unchanged at 4.9 percent.
The labor market report is drawn from two separate surveys -- a so-called household survey from which the unemployment rate is calculated and a larger poll of businesses to determine the numbers of employees on their payrolls.
REBUILDING PICKS UP
There were 46,000 new construction jobs in January, partly because of rebuilding following last year's devastating Hurricane Katrina. Service industries added a whopping 135,000 jobs.
Average hourly earnings rose to $16.41 in January from $16.34 in December. I guess they are not ALL minimum wage jobs. In the 12 months through January, earnings have risen by 3.3 percent, the largest for any 12-month period in nearly three years, since February 2003.
"These are the kinds of things that raise eyebrows at the Fed," said economist Cary Leahey of Decision Economics in New York. "The implication that this January report has for wage inflation is bothersome to the market and the Fed."
Snow has said the United States is close to a "tipping point" in the expansion where wages will start to rise.
The next meeting of the Fed's rate-setting Federal Open Market Committee is March 28.
But Fed Chairman Ben Bernanke -- just sworn into the job on Wednesday -- is to testify before Congress about the economy on February 15-16 and will face a grilling on whether labor markets are tight enough to spell danger.
The jobless rate "is probably at or slightly below the level the Fed is thinking is full employment, so it will strengthen their resolve to lean against inflation pressures," said economist Elisabeth Denison of Dresdner Kleinwort Wasserstein in New York. "We expect another quarter-point hike in March."
The Labor Department revised up December job growth to 140,000 from 108,000 reported previously and said 354,000 jobs were created in November instead of 305,000.
If oil was the only worry in the world, there wouldn't be any worries. Worry about the tree huggers that is stopping us from getting the oil out of the ground.Mr.Conley said:Always worry about oil. Everything you have in your life is thanks to oil. Your house is built with materials cut, created, shaped, molded, and transported with oil powered machinery. You food is grow using natural gas-derived fertilizers and transported on an oil powered truck in a refrigerated container made by oil-powered factories. Your electricity is comes from coal mined and transported to the coal plant by oil, natural gas that comes from oil fields, and nuclear and hydro plants built by construction equipment fueled by oil. The same goes for any alternative energy resource. Anything that affects oil affects us all.
The unemployment rate fell to 4.7%, a low enough number that some FOMC members will be getting increasingly nervous about resource utilization. Some will point to the slight uptick in the employment to population and low labor force participation rates as evidence that the labor market is weak. I think that is a difficult argument to make see also David Altigs thoughts on this point. There are likely secular trends in the labor markets that are not fully accounted for yet. Another potential weak spot in the report was the flat work week.
Overall, however, my take on the data suggests a relatively strong labor market. In addition to steady job growth and low unemployment, wages gains are accelerating, with Januarys 7 cent gain pushing wages up 3.3% compared to last year (and 2 consecutive 0.4% monthly gains, or an annualized 5.3% gain in January). And buried within the data are further bright spots, such as a solid decline in long term unemployment (more than 27 weeks):
Also, the unemployment rate including marginally attached persons and those employed part time for economic reasons continued its steady march down as well:
Now, one does have to be careful with unemployment rates as they are lagging indicators. But initial jobless claims a leading indicator remain low (in Oregon claims have dropped to the lowest level in over 10 years). Moreover, I am picking up anecdotal evidence that employers are sensing a change as well. Paraphrasing one employer, My employees are asking for higher wages, and actually expecting they will get them. And they do.
When employers complain about lack of potential workers, I tell them they need to raise wages. This doesnt make them happy, either.
Note that I am not attributing a stronger labor market to any specific economic policies. And it is true that the labor market remained lackluster for an extended period of time. But it does look like conditions have significantly improved over the past year, and the Fed will take note.
Merlin said:If oil was the only worry in the world, there wouldn't be any worries. Worry about the tree huggers that is stopping us from getting the oil out of the ground.
There are a few other reasons to worry about oil.
1. Saudi Arabia production capacity is expected to peak by 2010 , that means that from then on Saudi Arabia's production will fall. The world's gas station will run out.
2. Every single non-OPEC country has seen production fall.
3. US oil production continues to decline as it has for decades, producing less than 40% of our needs.
4. ANWAR will, at peak production capacity 15 years from now, produce 600,000 -1,200,000 barrels per day. The US currently consumes 20 million barrels per day, a number that will likely only continue to rise.
5. Most OPEC countries are believed to have vastly over inflated the amount of oil in their reserves. Kuwait recently revealed its oil stocks to be less than half of what was previously believed.
6. US relations with the owners of the world's third largest supply of oil, Iran, are less than good.
7. Chinese companies continue to bully international companies in attempts to seize forgein oil fields thanks to financial backing from the Chinese government. The Unocal debacal is a recent example of Chinese attempts to secure supplies for its increasing oil demand from overseas sources
8. Venezuela's, the largest non-OPEC producer, leader Hugh Chavez has repeatedly threatened to cut off US oil supplies. He has also begun establishing a close relationship with India
9. For every barrel of new oil dicovered, the world consumes six barrels of oil. For the past two years oil companies have spent more money exploring for new researves than actually finding new commercially viable fields. Finding oil is now a money loser.
10. The US Geographical Survey declared 2025 to be the year world oil production will "peak" after the peak date, oil production will decline despite new advances in extraction and production technologies simply because there isn't enough oil left in the ground. This phenomina has been repeatedly reserved in individual wells, fields, companies, and our own domestic production, which peaked in the late 60s. The USGS's numbers have been traditionally off by a factor of 2.5. Most sources place the peak between 2010-2012 at the least. Some experts believe oil production peaked last year.
11. The production of shale and tar sand oil is prohibitively costly and requires natural gas, a byproduct of oil, for production to be economically possible. The Alberta tar sands, the area generating the most interest and actual investment, will require 20-35 years to reach an estimated peak production of 10 million barrels per day, less than half or need and thats before factoring in Canada's own oil demands.
12. Hydrogen fuel cells are costly at nearly 1 million dollars. They only last for one year. The production of fuel cells requires platinum. The world is estimated to hold enough extractable platinum to replace the world car fleet with fuel cells once. With a one year lifetime, these fuel cells would not work without at least another two decades of research by most estimates. By which point peak production would have already occured. It would take at least 20 years to refit every vehicle on the road with a fuel cell.
13. Methane form the sea is volitale and could result in a global environmental catstophe if improperly extracted. No one knows how to extract methane from the sea floor. It would take years before a significant methane infastructure could be put in place to wean ourselves off oil.
14. Nuclear plants cost 2-4 billion dollars, take 4-5 years to build. The first nuclear plant probably would not begin contruction because of regualtory hassles until 2010.
15. All electrical sources of power would have little effect on a decline in oil production. This is because our transportation system is designed to run directly off of oil, not electricity derived from other sources. It would take years to reroute our 45 trillion global economy to run its transportation network off a non-oil source
16. Only 5 million of our nations cars can run off ethanol. The amount of land required to grow enough corn to fuel cars would be roughly equal to the landmass of Africa.
17. Your car is designed to run of oil and only oil and no matter how many solar or wind plants we build it won't run on electricity. Again it will take decades to replace the car fleet
Mr.Conley said:Its not about running out, its about having enough of oil at a cheap enough price to keep us/the world out of recession or, more likely depression.
manu1959 said:if all the oil disappeared tomorrow what would happen?
Mr.Conley said:1. You would die. Without oil we have no way of transporting food from rural Nebraska to Lincoln, much less New York, LA, or Washington. Given that on average the food on your plate has traveled 1500 miles to get were it is means that short of growing your own food already or living near a farm with no other large, hungry, urban populace around you are screwed.
2. The global economy would collapse because it is in essence the transfer of goods and services. Without oil, there is no transportation system to transfer it on. Plus everyone would be dead.
3. No food. No fertilizer for production. No tractors for harvesting no refrigerated cars and trucks to transfer to your local supermarket. No car for you to get there. No gas stove for you to cook it with
Will continue later.
manu1959 said:the world would not die....it would be different....and i would not die.....i would simply move to my farm
Mr.Conley said:THe world wouldn't die but a majority of the global population would. They wouldnt have food and some farmers wouldn't make it without fertilizer.
As for you, make sure you can plant, grow, harvest, process, store, prepare, and bake enough food for you and your entire family for a year on one annual harvest plus supplies in case of a drought. Also do this without fertilizer,or a tractor, or refrigerated storage, or a guaranteed supply of water, or insecticide, also your mill can't run off electricty. Also keep the starving masses from breaking in a taking your crops. Don't forget to grow a variety of food so you get enough nutrition. Finish that check list and good luck to you and enjoy the show while the everyone else starves.
dilloduck said:SOLAR POWERED TRACTORS
manu1959 said:somehow i think the california farm belt will be just fine
The issue is not one of "running out" so much as it is not having enough to keep our economy running. In this regard, the ramifications of oil peaking for our civilization are similar to the ramifications of dehydration for the human body. The human body is 70 percent water. The body of a 200 pound man thus holds 140 pounds of water. Because water is so crucial to everything the human body does, the man doesn't need to lose all 140 pounds of water weight before collapsing due to dehydration. A loss of as little as 10-15 pounds of water may be enough to kill him.
In a similar sense, an oil-based economy such as ours doesn't need to deplete its entire reserve of oil before it begins to collapse. A shortfall between demand and supply as little as 10-15 percent is enough to wholly shatter an oil-dependent economy and reduce its citizenry to poverty.
The effects of even a small drop in production can be devastating. For instance, during the 1970s oil shocks, shortfalls in production as small as 5% caused the price of oil to nearly quadruple. The same thing happened in California a few years ago with natural gas: a production drop of less than 5% caused prices to skyrocket by 400%.
Fortunately, those price shocks were only temporary.
The coming oil shocks won't be so short-lived. They represent the onset of a new, permanent condition. Once the decline gets under way, production will drop (conservatively) by 3% per year, every year.
That estimate comes from numerous sources, not the least of which is Vice President Dick Cheney himself. In a 1999 speech he gave while still CEO of Halliburton, Cheney stated:
"By some estimates, there will be an average of two-percent
annual growth in global oil demand over the years ahead,
along with, conservatively, a three-percent natural decline
in production from existing reserves.That means by 2010 we
will need on the order of anadditional 50 million barrels a
day."
Mr.Conley said:Fortunately we won't run out of oil, we will just have less and less of it. Thats a major problem, but with some conservation, increased energy efficancy, a well-planned transition period, and a lot of luck we, and the world could come out relatively unscathed. I hope that that will happen is not very high. TO quote
As I hope you can imagine, this is a problem.
