No longer a jobless recovery
Companies go on a spring hiring spree as profits surge
Though most Americans still don't believe it, happy days are unequivocally here again--at least on the home front. "The economic news is as good as the Iraq news is bad," says Donald Straszheim, president of Straszheim Global Advisors.
Job data are finally dispelling the notion of a job-less recovery: Some 288,000 new jobs were added in April, the unemployment rate dropped another notch to 5.6 percent, and weekly applications for state unemployment benefits dipped to a 3 1/2-year low. With revisions upward for February and March, a total of 1.1 million jobs have been added since August, with hiring widespread from manufacturing to business services.
Average hourly wages rose 5 cents, to $15.59, the biggest one-month gain since last July. Meanwhile, the manufacturing sector, which added 21,000 new jobs, is going gangbusters, as orders for factory goods surged 4.3 percent in March. The services sector, the elephant of the economy, meanwhile expanded at a record pace last month. "Not only is the economy growing at a healthy pace; it's accelerating," says Straszheim, who forecasts an annualized second-quarter growth rate of more than 5 percent, "and there's no reason the second half of the year won't be as strong as the first."
Job seekersaren't the only beneficiaries. The vast majority of S&P 500 firms have reported their first quarter results, and they're stunning, driven by productivity gains, strong sales, a weak dollar, and comparison with a poor quarter last year. Thomson First Call predicts the quarter will show an average 27 percent growth in earnings versus a year ago. Cost cutting helped Ford Motor nearly double its net income. Financial firms fared well, with three of the largest U.S. banks--Wells Fargo, Bank One, and U.S. Bancorp--reporting record quarterly profits from rising credit card fees and declining bad loans. And a hike in energy prices made oil companies big winners, with earnings at giants Exxon Mobil and ChevronTexaco up 14 percent and 33 percent, respectively.
Oil broil? But that source of good news could be trouble for others. Oil at nearly $40 a barrel has driven gasoline prices close to a $2-a-gallon average nationwide. That could eventually prove a drag on consumer spending. Political violence in Saudi Arabia, the globe's de facto central banker for petroleum, brings fears of a disruption in the oil supply. Though unlikely, just the idea of such led to a sell-off on Wall Street in recent days.
In many ways, fear of an overheating economy is now the biggest concern. Signs of inflation have cropped up in labor, food, and some consumer costs. The Federal Reserve's interest-rate committee met last week and held short-term rates steady, though it began laying ground for coming interest-rate hikes. Economists are puzzled by the Fed's take on inflation. "It's odd how far the Fed bends backward lately to exonerate the notion that inflationary pressures are building," says Roger Kubarych, economist at HVB America, a subsidiary of German bank HVB Group. He says the Fed is probably just buying time to view more economic data before raising rates.
Fed Chairman Alan Greenspan's real worry, which he voiced Thursday to a banking conference in Chicago, is a longer-term one: namely, the budget deficit. The chairman called for fiscal balance and offered a timeworn, though often unheeded, bit of wisdom: "The free lunch has still to be invented."
But in an election year, don't expect too much fiscal sobriety. Times are good, and the partying is likely to continue.
This story appears in the May 17, 2004 print edition of U.S. News & World Report.
advertisement
