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Top 432. Jun 3, 2000 8:20 PM

» JenL_2 - New York Times articles

David said that the links above don't work. Guess you have to be registered to see them, but registration is free. Anyway I'll copy the 3 articles from 6/3 New York Times here:

116,000 Jobs Lost in May, Biggest Decline in 8 Years

By LOUIS UCHITELLE

In the strongest signal yet that the booming American economy is slowing, the Labor Department reported yesterday that the nation's private-sector employers, instead of hiring, shed 116,000 jobs in May. It was the largest drop in more than eight years and the first since the economy began to soar in the mid-1990's.

The unemployment rate edged up to 4.1 percent from 3.9 percent, with blacks and Hispanics absorbing most of the loss. Wage increases, which had accelerated in the early spring, eased in May, reducing concerns about inflation. Jobs disappeared in almost every sector of the economy, except government, where the hiring of 357,000 census takers for the once-a-decade population count offset the decline in business jobs.

The jobs report came on the heels of a half-dozen other indications this week that a still very strong economy is beginning to cool off, responding to the Federal Reserve's six interest rate increases over the last year. Car sales and home sales have dipped recently, partly because of higher car loan and mortgage rates.

Construction spending is off, and manufacturing production appears to have weakened in May.

"We clearly have evidence now that the economy is slowing," said Jerry Jasinowski, president of the National Association of Manufacturers. "The question is how much."

On Wall Street, investors pushed up stocks across the board yesterday -- as they have for much of the week -- in the belief that the accumulating evidence of a slowing economy would encourage the Federal Reserve to limit future rate increases aimed at keeping the inflation rate from rising.

The Nasdaq index registered its largest weekly percentage gain in history and the Dow Jones industrial average had one of its best weekly performances this year. The Dow closed above 10,794 yesterday, up more than 142 points. The Nasdaq closed at 3,813, up more than 230 points.

But the May employment report may overstate labor force weakness, some economists said, and may be encouraging too much euphoria.

Until this week, Wall Street forecasters had expected another rate increase at the Fed's meeting in late June. That expectation had helped to damp stock prices, and had led many economists to predict that the robust consumer spending fostered by the so-called "wealth effect" of a rising stock market would begin to moderate, weakening the economy.

But Wall Street's exuberance now creates a quandary for the Fed. "The economy is probably slowing, but the markets are so excited about it that higher stock prices are already increasing the odds of a speed-up in the economy this summer," said John Makin, an economist at the American Enterprise Institute. A revived wealth effect, he and other economists argued, could swamp the Fed's efforts to slow the economy, or convince the policy makers to keep raising rates.

"The irony is that when people believe the economy is slowing, the markets behave in a way that encourages people to spend more," Mr. Makin said.

Not surprisingly, the Fed's policy makers, starting with Alan Greenspan, the chairman, have made no reference in recent speeches to the state of the economy -- one concern being that if they were to observe that the economy might be slowing, stock prices could really take off.

The Clinton administration argued that the latest figures were nothing to worry about. "The economy took a breather in May," said Alexis Herman, the labor secretary, "but it remains robust."

Some economists lowered their forecasts yesterday for economic growth in the second quarter, which ends on June 30. For example, Macroeconomic Advisers, a consulting firm in St. Louis, predicted that growth would be closer to 3 percent than the 4.5 percent originally forecast.

But the May report may have overstated the job losses. Just as the March and April reports seemed to exaggerate job growth, they said, the May numbers seemed unrealistically low. Indeed, job growth in the private sector averaged 182,000 a month from January through May, almost in line with last year's average of 202,000 jobs a month.

Count all the census takers hired in May and jobs actually rose by 231,000, the Labor Department reported. But without them, the drop of 116,000 jobs in the private sector was the first loss since January 1996, when 61,000 jobs disappeared, and the largest since November 1991, when the work force shrank by 129,000 jobs as the nation emerged from its last recession.

May was the last month in which census takers were hired in huge numbers; the estimate for June is only 11,000. Still, some economists argued that if the census takers had not gone to work for the government, at $8 to $18 an hour, many would have found employment in the private sector, swelling the rolls.

"The private-sector employment numbers are definitely" an anomaly, said Chris Varvares, a partner at Macroeconomic Advisers.

Still, the cutbacks were widespread. Reversing course, 29,000 jobs disappeared in construction, 71,000 in wholesale and retail trade, 17,000 in manufacturing, and 11,000 in transportation, mostly trucking.

"Jobs even fell for college graduates," said Lawrence Mishel, research director at the Economic Policy Institute.

Labor Department statisticians offered various reasons for much of the drop, particularly for construction and retailing. Warm winter weather, for example, swelled construction rolls in April, so employers did not need to hire in May.

Retailing exhibited a similar pattern.

The wage and hours numbers were less equivocal. Average hourly earnings, covering 80 million production employees in a work force of 131.7 million in May, rose only a cent, to $13.65, the smallest increase in months. This number is the first on wage trends each month, and with the slight May increase, wage growth over the previous 12 months fell to 3.5 percent from 3.8 percent in April.

The slight rise in joblessness hit hardest at blacks, whose unemployment rate rose to 8 percent from 7.2 percent. That was still well below the peak for the 1990's of 14.2 percent in June 1992. Hispanics, whose rate edged up to 5.8 percent from 5.4 percent, remained far from their peak of 12.1 percent, also in June 1992. By comparison, the unemployment rate for white adults remained at 3.5 percent.

The pool of people available to take jobs -- those either actively seeking jobs or willing to work if a job came their way -- rose to 10.2 million from 9.9 million in April.

The Labor Department's job numbers come from a monthly survey of 400,000 businesses. An annual revision, announced yesterday, resulted in small changes in earlier months, most of them upward.

The unemployment rate, on the other hand, comes from a separate survey of 50,000 households. It also produces an estimate of the total work force, one considered less accurate. In May, according to the household survey, 991,000 jobs disappeared, the largest one-month drop since the survey began in 1948. To the Labor Department, that outsized decline reflected problems in the way the results are adjusted to account for seasonal variations.

Whatever the statistical quirks, the new signals of a slowing economy suggested to William Dudley, director of domestic research at Goldman, Sachs, that "it is going to be hard for the Fed to justify raising rates at the June meeting."

Stocks Post Big Gain on Report That Shows Slowing Economy

By ALEX BERENSON

The Nasdaq composite index soared 6.44 percent yesterday, ending its best week ever, as investors cheered data suggesting that the nation's economy is slowing and the Federal Reserve may be almost done raising interest rates.

The gains in many technology stocks echoed the wild trading seen in January and February, with many big technology companies rising 10 percent or more on heavy volume. Over all, the Nasdaq rose 230.88 points, to 3,813.38, continuing its extraordinary volatility. Other indexes also gained, although less than the Nasdaq. The Dow Jones industrial average increased 142.56 points, or 1.34 percent, to 10,794.76, and the Standard & Poor's 500-stock index jumped 28.45 points, or 1.96 percent, to 1,477.26.

With unemployment in May rising unexpectedly and wages nearly flat, Wall Street strategists believe that the Federal Reserve is no longer likely to raise short-term interest rates later this month and may not have to push rates much higher this year. To slow the economy and keep inflation down, the Fed has already raised short-term rates six times since June 1999, and until this week many economists thought at least two more increases were likely.

Higher interest rates are usually considered bad for stocks, because a slower economy hurts corporate profits. Now, whether right or wrong, investors, who are convinced that rates will remain relatively stable, are eagerly seeking out shares in many of the companies they fled earlier this spring.

The buying spree, which began in earnest Wednesday, accelerated yesterday as many stocks jumped at the opening bell and stayed strong through the close of trading.

"The message is fairly clear that investors, after believing that there would be at least one more Fed tightening, have concluded that would not be the case," said Ed Yardeni, chief economist and global investment strategist with Deutsche Bank Securities.

Mr. Yardeni said he believed the Fed, whose primary mandate is to keep the United States economy growing steadily with low inflation, ran the risk of embarrassing itself if it continued to raise rates this summer.

Despite a spike in energy prices and scattered indications that wage inflation is rising, "the latest inflation indicators suggest that inflation isn't even close to being a problem," Mr. Yardeni said.

"The Fed is just going to have to chill out and enjoy prosperity," he added.

Abby Joseph Cohen, the chief investment strategist for Goldman, Sachs, said the breadth of this week's rally impressed her. While the Nasdaq's frantic gains in January and February came largely at the expense of old-economy stocks in the S.& P. 500, the gains this week included both the Nasdaq and the S.& P., Ms. Cohen said.

"This is a situation where investors are taking a look at the economic data and deciding the situation was not quite as ugly as they had assumed," she said. "The economy is still growing, but more slowly."

Still, yesterday's action had more than a touch of last winter's speculative fever to it. Many big Nasdaq stocks rose 10 percent or more, with JDS Uniphase up 12 1/8, to 110 3/8, and Broadvision gaining 10 1/8, to 53 5/8. The bellwether Cisco Systems, the second-largest stock on the Nasdaq, continued to rally, gaining 3 7/16, to 64 3/8. Cisco has now gained almost 30 percent in just over a week, adding $100 billion to its market valuation.

Other big winners included financial stocks, which often gain when interest rates are falling. Merrill Lynch rose 4, to 108, while Citigroup jumped 2 15/16, to 66 1/4.

Mickey Levy, the chief economist at Banc of America Securities, said he expected financial stocks to continue to gain. "Financial stocks always outperform prior to an inflection point," when the Federal Reserve stops raising interest rates, Mr. Levy said. "They've been rallying in the last few weeks. They've outperformed. As analysts soften their expectations for the Fed to tighten even more, the rotation into financials will continue."

But not everyone believes the Fed is done raising rates. Stephen Slifer, the chief United States economist for Lehman Brothers, said he still expected the bank to increase short-term rates by one-quarter of a percentage point at the end of June and another quarter-point in August. In the wake of yesterday's unemployment report, which showed joblessness rose from 3.9 percent in April to 4.1 percent in May, Lehman lowered its estimates for United States economic growth for the second quarter from 6.3 percent to 4.7 percent.

Still, Mr. Slifer expects the economy to expand at 5.2 percent for all of this year and another 3.7 percent next year, levels that are high by the standards of the last two decades. With the economy growing so fast, the Fed must remain wary of inflation, Mr. Slifer said.

"By any sort of recent historical standards, growth is just off the charts," he said.

In addition, the Fed chairman, Alan Greenspan, has publicly worried about the potential inflationary effect of a rising stock market. As the market rises, investors who feel flush may increase their spending, overheating the economy and causing inflation.

Coming along with the broader economic slowdown, the nearly 40 percent drop in the Nasdaq between March 10 and Tuesday, which erased more than $2 trillion in investor wealth, may have alleviated some of the Fed's concerns, Mr. Slifer said. But if the Nasdaq regains its losses too quickly, it could once again overheat the economy, he said.

"A couple of months from now, if the Fed doesn't do anything, they could be right back worrying about the economy overheating again," he said.

Bond prices were mixed yesterday. The price of the 30-year Treasury bond fell 2/32, to 104 9/32. The bond's yield was unchanged at 5.94 percent. The price of the 10-year note rose 4/32, to 104 9/32. The yield, which moves in the opposite direction from the price, fell to 6.16 percent from 6.17 percent on Thursday.

The Only Sure Thing Has Been Volatility

By FLOYD NORRIS

Is this move real, or is volatility just going wild?

That may be the most difficult question for stock market watchers, particularly with regard to the Nasdaq composite index, which is dominated by technology stocks that regularly zoom and fall.

This week was the best ever for the Nasdaq composite, which rose 18.98 percent. That was nearly twice the gain in the previous best week for the index, a 9.71 percent rise recorded only six weeks ago.

Yet, even with the two best weeks ever for the Nasdaq market, the index is down 6.3 percent since the end of 1999. Four of the five weeks between the two great weeks were losers.

Moreover, this year has also had the worst week ever for the Nasdaq market, a 25.3 percent plunge in the week ended April 14. That decline set off warnings of severe economic effects if the stock market continued to fall, which it did not.

You can also see the extraordinary volatility measured daily. In the history of the Nasdaq stock market, dating back to 1971, there have been 26 days in which the average closed with a gain or loss of at least 5 percent. Exactly half of them have occurred in 2000, three of them this week, when there were only four trading days because of Memorial Day.

Volatility is not as great in the broader market as it is in the Nasdaq market, largely because other stocks do not swing as violently as do many technology issues. But it is unusual: So far this year, the Standard & Poor's 500 has risen or fallen by 1 percent or more on 49 percent of the trading days. That is well below the 79 percent figure posted by the Nasdaq composite, but it is up from the S.& P.'s 37 percent in 1999 and is the highest for that index since 1938, when stock prices swung wildly in the Great Depression.

One explanation for the extraordinary volatility relates to the way the Internet revolution has made it possible for individual investors to trade rapidly at very low costs. Many have done so. If those traders tend to move in herds, leaping in when prices are rising and out when they are falling, then they can exaggerate any market move.

Some volatility no doubt relates to the fact that other traders are only slowly learning to deal with the market effects of that additional trading. There are precedents for such confusion. In the 1970's, institutional investors drastically increased their trading of big blocks of stock, and volatility soared amid a lot of hand-wringing about the dangers of such trading.

Similarly, the rise of index arbitrage trading in the 1980's increased volatility and set off complaints that the markets were being destroyed.

In both cases, investors learned to deal with the new form of trading, and volatility subsided.

Recently, volume has been relatively weak compared with the peaks earlier this year. Low volume can also increase volatility, with fewer traders willing to step up to take the other side of a trade when large numbers of investors want to get in or out.

None of those explanations, it should be noted, has the slightest relationship to what really is or is not going on in the economy. But uncertainty about that also seems to have increased.

The huge run-up in technology stocks, particularly Internet stocks, from last summer through early March, in part reflected hopes that the new economy would produce huge profits some day, and that those who bought were getting in on the ground floor of a new skyscraper. Others thought that idea was ludicrous, and that valuations were completely ridiculous.

In such a polarized investment climate, prices can swing violently, simply because there are few investors likely to move in to buy on a small decline, or to sell on a small increase. So a relatively small increase in buying or selling pressure can create a big move.

The Federal Reserve also seems determined to raise interest rates until the economy slows.

Because of that bias, reports of a strong economy can seem bad, since they make further interest rate increases more likely, while reports of a slowing economy, as were stimulated by yesterday's employment news, can seem like good news. All that could change, of course, if fears grew that the Fed was likely to bring on a recession rather than just slow the economy to a more moderate rate of growth.

In the end, the extraordinary volatility may mean investors are nervous and confused. They know that, for two decades, buying stocks has almost always been a better move than selling them. They also worry about losing some of those big profits. With those dueling concerns, greed can turn to fear, and back to greed, within weeks if not days.

So what does any big move in stock prices -- either up or down -- really say about the future of the economy? In retrospect, the pundits may be able to discern a pattern. But for now, there is no way to know which move, if any, has real economic significance.

....Jen

-- posted by JenL_2

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