Industries Cut Jobs as Output Rises

NEW YORK October 1, 2003; Wayne Cole writing for Reuters reported that U.S. manufacturing took a step backward in September in another sign that industry is still shedding jobs, an influential survey showed on Wednesday.

On the positive side, there was a glimmer of strength in new orders, which hit a high for the year, while construction figures showed home building rose to record levels in August.

However, all the omens are grim for job creation and analysts fear September payrolls will fall for the eight straight month when the data is released on Friday.

"There is nothing here that offers signs of encouragement," said Norbert Ore, head of the committee that compiles the survey for the Institute for Supply Management.

"The rate of decline seems to be slowing ... but I don't see much change in the employment picture in the next six to 12 months," he added.

The Institute's national manufacturing barometer slipped to 53.7 in September from 54.7 in August. Analysts had expected a slight gain to 55.0.

Financial markets had been braced for a soft number after a poor regional survey on Tuesday and the initial reaction was muted, with shares holding gains while Treasuries pared losses.

Analysts were also encouraged by a rise in the survey's new orders index, to 60.4 in September from 59.6.

"New orders is strong, which is key for going into next quarter," noted Kurt Karl, chief economist for North America at Swiss Re in New York.

"Unfortunately, it's not too surprising on the job front -- there seems to be no good news there," he added.

The employment measure of the report dipped further, to 45.7 in September from an already low 45.9 in August.

Employment research firm Challenger, Gray & Christmas reported planned layoffs at U.S. firms slipped only slightly in September, to 76,506 from 79,925 in August. That came on top of 872,080 job cuts so far this year.

Jobs, or the lack of them, have become the hot topic for both markets and politicians, and the longer the labor market stays weak, the more chance there is that economic growth will slow again after this quarter's spurt.

LOTS OF SPENDING, STILL NO JOBS

Ford Motor Co. became the latest company to announce major job cuts, saying on Tuesday it plans to cut 3,000 positions in the United States. Other major car makers were expected to follow with cuts of their own, despite selling near-record amounts of vehicles.

Figures on auto sales for September are due later on Wednesday and, while some pullback is expected from August's astonishing highs, the sector is expected to stay historically strong.

Unfortunately for American workers, U.S. drivers seem to prefer foreign autos over many of the domestic models and Toyota (Tokyo:7203.T - News) actually passed Daimler Chrysler in sales in August.

That may be one reason why General Motors Corp. said on Wednesday it was beefing up already generous incentives for October, offering cash rebates of up to $4,500 for some models.

While all the discounting has stimulated demand, it has done nothing for profit margins, which could be one reason GM shares are little changed today from their levels a year ago.

Still, the fast and furious demand for autos is a major reason why analysts believe overall economic growth accelerated sharply in the third quarter.

Many see Gross Domestic Product, or the sum of everything produced in the economy, hitting 5.0 percent or more in a big step-up from the second quarter's 3.3 percent pace.

Yet all this growth has been unable to generate jobs. Nonfarm payrolls fell by a total of 142,000 in July and August and economists fear the September report could show another sizable drop.

RATES FALLING AGAIN

So great is the concern over jobs that some analysts are starting to wonder if the Federal Reserve might not have to cut interest rates again, a radical change in thinking for markets that have been far more concerned about when the first tightening might come.

That sea change has been reflected in the Treasury market, where benchmark 10-year yields have tumbled over half a percentage point in recent weeks to break below 4.0 percent.

That is important because mortgage rates, which are tied to 10-year yields, have thus been dragged lower, offering an extra lease of life to the long-booming housing market.

Figures released early on Wednesday showed applications for mortgage loans rose slightly last week as a decline in mortgage rates prompted homeowners to refinance their loans.

Meanwhile, data on August construction showed residential spending jumped 1.4 percent to an all-time high. Total construction spending rose a more modest 0.2 percent but still looks likely to contribute to overall economic growth last quarter.