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Snow expected to cloud February employment report

Thu, 03/04/2010 - 7:30pm

The government's closely watched monthly employment report will be unusually hard to read this time.

That's because the snowstorms that hammered the East Coast last month occurred on the same week that the government surveys businesses about their payrolls. Employees who couldn't make it to work and weren't paid won't be included on those payrolls. Job losses for February may be artificially inflated by 100,000 or more, economists estimate.

That doesn't mean the report that the Labor Department releases Friday will be dismissed. Economists expect to dig beneath the headline numbers to try to isolate underlying trends.

But given the intense interest in jobs among policymakers, economists and the public, the distortions come at an unfortunate time.

"It's a shame you won't get a clean reading ... when the sustainability of the recovery is uppermost on people's minds," said John Canally, an economist at LPL Financial.

Overall, economists forecast the unemployment rate will rise to 9.8 percent in February from 9.7 percent, according to Thomson Reuters. Employers are expected to shed 50,000 jobs, though that includes the snow impact.

The unemployment rate is less likely to be distorted by the weather, economists say. The reason is that it will count the workers who stayed home because of snow as employed. The jobless rate is likely to rise because companies are still reluctant to hire.

"It's hard to believe that the unemployment rate is falling when we're not creating jobs yet," said Conrad DeQuadros, an economist at RDQ Economics.

If job losses are artificially inflated in February, employment should snap back in March as hiring that was delayed takes place and workers return to jobs. That is what has happened after previous weather disruptions. In February 1996, for example, the nation posted robust job gains, a month after a severe snowstorm.

On Thursday, the economy showed renewed strength as retail sales surged last month and factory orders also increased. Such gains could lead to more hiring in coming months - if they can be sustained.

Retailers said Thursday that store sales rose in February by the largest amount since November 2007. And orders to U.S. factories in January posted their sharpest rise in four months, the Commerce Department said. It was another sign that manufacturing is helping drive the economic recovery.

The upbeat reports followed other encouraging signs this week: The service sector grew last month at its fastest pace in more than two years, according to a private survey of purchasing executives released Wednesday. And a similar survey on Monday found that manufacturers are also growing.

Still, jobs are the big unknown. First-time claims for jobless benefits remain elevated, despite a drop last week. The Labor Department said Thursday that initial claims for unemployment aid fell by 29,000 to a seasonally adjusted 469,000 last week. But that drop only partly reversed a sharp rise in claims since the year began.

The four-week average of weekly claims, which smooths volatility, fell to 470,750. Yet that's still above the 425,000 level that economists say claims need to fall below to signal hiring.

"This level of claims is still discouragingly high and is not consistent with private-sector job growth," Zach Pandl, an economist at Nomura Securities, wrote in a research note.

One way that companies can raise output without adding jobs is to squeeze more production from their existing staff. The Labor Department said in a separate report Thursday that productivity rose by 6.9 percent in the fourth quarter. And labor costs fell at a 5.9 percent rate.

Few economists expect the outsize productivity gains to continue. Productivity typically rises about 2 percent a year. For all of 2009, productivity rose 3.8 percent. If those productivity gains slow and consumer and business demand rises, hiring should follow.

"Businesses cannot meet demand requirements with their current staff levels," Carl Riccadonna, senior U.S. economist at Deutsche Bank, wrote in a research note. "If demand continues to increase, then a surge in hiring is highly likely in the relatively near term."

A still-weak housing market is weighing on the recovery in the meantime. The number of people who agreed to buy a home fell sharply in January. The report Thursday from the National Association of Realtors said demand for housing fell as stormy weather slammed Eastern states.

___

Associated Press Writers Alan Zibel and Martin Crutsinger in Washington and Anne D'Innocenzio in New York contributed to this report.

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