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Where Are the Jobs?

By Joseph Lisanti Stocks were coasting along in a strong start to 2004 when the Bureau of Labor Statistics put up a roadblock in the form of the monthly employment report. Although the market sold off on the news, it quickly rebounded. But why was the jobs report so weak?

The BLS figures indicated that the U.S. economy added only 1,000 jobs in December, far below economists' projections of 130,000 to 150,000. Fed Chairman Alan Greenspan said that increased productivity was the main reason the number of jobs created last month was so low. We agree that more efficient use of the workforce means that companies can increase output without a commensurate rise in the level of employment. But productivity appears to be only part of the story.

David Wyss, Standard & Poor's chief economist, thinks that much of the answer lies in the realm of retail employment. Although retail sales were a bit lower than expected (excluding autos they rose only 0.1% last month), much of what strength there was in the retail sector came from Internet and so-called big box stores. These operations are not noted for adding much temporary staff to handle holiday shopping, observes Wyss. The one retail area that was strong and probably did add employees was the luxury goods business, but any job additions there were likely more than offset by traditional department stores, whose sales remain weak.

The BLS figures are seasonally adjusted. Since retailers historically have added part-time and other temporary workers to cope with the year-end shopping rush, statisticians at the Labor Department use models to smooth out that bump up in job creation. But when the expected increase in temporary jobs isn't there, says Wyss, the statistical model causes real job increases to be underreported.

We continue to believe that the economy is on track to deliver solid gains in the months ahead. Eventually, the jobs market will reflect that. Lisanti is editor of Standard & Poor's weekly investing newsletter, The Outlook

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