Slowdown May Be No Threat to Jobs.

EMPLOYERS are going to be reticent to lay off workers as the U.S. economy slows this time around because the alternative - trying to find skilled workers during the economic boom - proved to be so onerous.

While the pace of job growth has slowed and the number of people filing an initial jobless claim has risen, the labor market is showing no visible signs of slack.

Annual employment growth, as measured by the employment report's household survey, has averaged 1.1 percent in the six months through October while labor force growth is running at 0.9 percent.

You do the math: the demand for labor is still eating up all the supply, keeping the unemployment rate in a 3.9 percent to 4.1 percent range for the past year.

The establishment survey, which polls firms, not households, and captures two-job workers in addition to new immigrants, shows average private payroll growth of 2 percent in the last half year.

While the trend shows a marked deceleration from 3.2 percent in January 1998 to 1.9 percent in October, employment growth hasn't slowed enough to raise the unemployment rate.

If it were up to employers, they'd be hiring a lot faster, according to the first-quarter employment survey from Manpower Inc., the world's largest temporary staffing firm. Hiring demand hit a record in the first quarter on a seasonally adjusted basis, with 27 percent of the 16,000 firms surveyed expecting to add to their payroll, 10 percent planning to trim and 58 percent anticipating no change.

What was surprising in the latest survey was year-round need from traditionally seasonal retail and wholesale trades.

"Wholesale and retail trades, normally reducing bloated holiday workforces, now undertake staffing on a year-around basis and expectations are positive for the seventh consecutive year at the post-holiday period," Manpower said in its press release. "Current needs are more than double the level of the year-ago period."

The outlook for the construction industry is "twice as bright as that of one year ago as 24 percent will continue to seek workers," Manpower said. "Not since 1978 has the demand been greater at this season."

Push by government

Hiring intentions of manufacturers were below year-ago levels, although the industry showed regional variations (strong in the West and South, weak in the Midwest).

Lest you believe one presidential candidate's campaign promises of not increasing federal payrolls by even one employee, public administration expects "the most aggressive first quarter since 1978," with 24 percent of employers planning to increase payrolls.

Whether these employers will be able to satisfy their strong demand is another story. The Manpower Survey's "uncanny ability to predict the quarterly average growth rate of payroll employment" lapsed in 1998, according to economists at Wrightson Associates. "Since then, the index has served mainly as an illustration of the difficulty of locating new workers."

In light of the difficulty in recruiting even unskilled labor - Starbucks Corp. is offering full benefits to part-time workers - employers are going to think twice before issuing pink slips.

To be sure, the unemployment rate doesn't start to rise aggressively until the economy is in a full-blown recession, economists point out. Which is why the unemployment rate is a lagging indicator.

"Unless you can substitute a machine for a person, like the toll-taker on the Jersey Turnpike, employers will be slow to let people go," says Jim Glassman, senior economist at Chase Securities.

Many industries, such as financial services, used "flexible compensation schemes to lure and retain managers during this period of strong growth," said Brian Jones, economist at Salomon Smith Barney. These firms will accommodate slower growth by adjusting the pay packages, not laying off employees.

Lots at want ads

And as for businesses such as restaurants and retailers, they're still displaying "help wanted" signs in the window and would probably be grateful for any fleeing up of scarce labor resources. In that case, the unemployment rate won't be telling the right story.

Why is this important? Because many analysts interpreted the Federal Reserve's statement following its policy meeting last week as a sign that the Fed isn't about to lower interest rates anytime soon - at least until the labor market, as described by the unemployment rate, shows some slack. The press release led with the statement that "the utilization of the pool of available workers remains at an unusually high level."

With the record trade deficit for September sending economists back to the drawing board to revise their third-quarter GDP forecasts lower to about 1.7 percent, the Fed is going to be awfully nervous if the fourth quarter shows no more oomph.

After all, policy by gut feeling leaves much room for error.

"Unless you can make a case that a 4 percent unemployment rate is too low, there is no reason to hang out and let the unemployment rate rise to a level deemed appropriate," Glassman says. "You take out some insurance."

You can bet on it. Watching the unemployment rate in order to divine the Fed's intent is probably not well advised when final demand is falling faster than labor demand.

Caroline Baum is a columnist for Bloomberg News.