ECONOMIC PICTURE

	August 1 , 2003
	Ray Suarez discusses the new job numbers with Maria Fiorini, a Wall Street economist; Mark Vitner, a senior economist at Wachovia bank; and Lisa Lynch, former chief economist at the Labor Department.

RAY SUAREZ: We begin with the latest economic numbers. The Commerce Department reported yesterday that the Gross Domestic Product grew faster than expected in the second quarter of the year, at a rate of 2.4 percent . But today's job numbers were mixed. While the jobless rate did not decline, many workers stopped looking for employment. And the manufacturing sector lost 71,000 jobs last month, the biggest drop in three months. For a closer look at these numbers and what they mean, we get three perspectives. Maria FIorini Ramirez is a Wall Street economist in New York who runs her own consulting firm. Mark Vitner is senior economist at Wachovia Bank in Charlotte, North Carolina. And Lisa Lynch is former chief economist of the Labor Department. She is the academic dean of the Fletcher School of Law and diplomacy at Tufts University. Maria Ramirez, we've got a mix of numbers. Consumer spending up, incomes up but employment staying stuck while the GDP is said to be growing. What do you conclude out of this mix of numbers? MARIA FIORINI RAMIREZ: Well, this mixed bag of numbers that we continue to be getting, I think all they can tell us is that the worst seems to be over, things seem to be bottoming out. I think the employment numbers are still going to be the key to sustainable economic growth. I think the best picture in the number was in the fact that temporary jobs continue to grow for the third month in a row. I really wouldn't put a lot of faith in the unemployment number -- the unemployment rate going down because it's still going to be boiling down to how many jobs out there that people are able to get. And you did point out that the labor force is really not growing in the sense that people are basically getting discouraged and not looking for jobs any longer. I think that's very negative. I think the GDP numbers yesterday, the story is in government spending, defense spending was very strong and also capital spending finally showing some sign of life as business spending picks up. That's clearly what you want to see in the longer term as companies spend more money, add more jobs, and it's more permanent in terms of what is sustaining economic growth. RAY SUAREZ: Mark Vitner, when you crunch those numbers, what kind of portrait does it present for you in terms of the economy right now? MARK VITNER: I think we may be a little bit more upbeat in terms of the GDP Number. Defense spending accounted for 1.6 percent to the 2.4 percent gain, we also had a huge increase in the trade deficit, which sliced off 1.6 percent . Also inventories declined, slicing up 8 tenths of a percent. When you put it together and look at the underlying growth in the economy's final domestic demand was, it was around 4 percent , which was very strong. RAY SUAREZ: But, Mark Vitner, temporary? Will we see a number like that next quarter? MARK VITNER: I don't know that we are going to get 4 percent in the third quarter. I think we are going to get 3.5 percent - or maybe 4 percent. That's what we currently have in our forecast. RAY SUAREZ: Lisa Lynch, what do the numbers say to you? LISA LYNCH: It is not often one has says a fall in the unemployment rate is bad news. But the fact that we went from 6.4 unemployment rate to 6.2 was driven by the discouraged workers. Workers are discouraged because even though the recession has been officially over since November of 2001, the U.S. economy is a million jobs less than it was in November of 2001. People are going out, they're looking, they're seeing that there are not new job opportunities, and they're getting discouraged and it is understandable. On top of that, we now have one in five unemployed workers who have been out of work for six months or more, and those individuals as well are facing an economy that just is not growing from the point of employment. RAY SUAREZ: What happens to those workers, the ones that now, when you look at the numbers, are more than 27 weeks out of work? When their benefits run out, do they stop being counted, or as long as they continue to look for employment, they stay nominally in the work force? LISA LYNCH: In the official statistics, as long as somebody reports that they are available for work and they have been looking for work, they will be continuing to be counted as unemployed. But individuals know, especially in smaller communities, know what job opportunities are there or are not there. And if you've exhausted all of your networks and all of the opportunities that you can see around you, you'll know when those opportunities come back up. But you may stop looking because you know that there's not anything around. RAY SUAREZ: Mark Vitner, talk a little bit about the recession in manufacturing jobs? While other sectors have been badly hit during this decline in employment, manufacturing has really taken it on the chin. Where is it worst and what sectors are being hit? MARK VITNER: Well, manufacturing has really been decimated in this recession. It is the worst recession since '81-'82, which was the worst recession since the great Depression. We've lost 2.7 million manufacturing jobs since July 2000. It has been spread across the industries. Computer and technical equipment have accounted for a lot of the loss and textiles and apparel, a relatively small component, has accounted for a disproportionately large share of the losses. RAY SUAREZ: Are these people finding jobs? MARK VITNER: In many cases, it's a hard road for them. Many of the textile mills are in the remote parts of the Carolinas, in Georgia and Virginia. There are not a lot of job opportunities for them. And a lot of the people who work in the textile plants do not have high school degrees or GED's. We had a mill close down recently, Pillow Tech Corporation. 40 percent of the workforce did not have a high school degree or GED. RAY SUAREZ: Maria Ramirez, you mentioned in your opening remarks that a large portion of the GDP growth was coming from military spending. The old idea was that was very stimulative in previous times of heavy military spending, that was said to have a good effect on the economy. Is it something that can be banked on in the coming quarters and is it something that has a particular impact in certain parts of the country where military industry is very heavy? MARIA FIORINI RAMIREZ: You know, the last time in the '80s when defense spending peaked, you could see a trend of defense spending going down and there was really a lot of that that took place in California. Some of the biggest cities for procurement spending was in California. I think the industry is more spread out. But if you look at, from the news coverage you were doing earlier, a lot of the defense spending is really taking place outside of the U.S. Yes, it's equipment that is being used, maybe U.S.-made, but I think it is more complex right now in terms of getting that defense spending stimulus. I want to add something to what was said earlier by our other guests. There is a huge amount of people coming from universities, college graduates in the last couple of years, that haven't been able to get a job, and that doesn't get really counted much in the employment numbers, but the contribution that you will get from them has not taken place. And on the manufacturing side, a lot of the jobs that are getting lost are getting lost permanently because the work is getting done in India or it's getting done in China even when it comes to technology and assembly, a lot of it is getting done in Asia. So I think the manufacturing jobs being lost might be more permanent in nature than what we've gone through in other cycles because the world is more flexible in terms of goods being made in other parts of the world and getting shipped to the U.S. I think it's hard to compare what is going on to other cycles because there is much more flexibility in the global economy. RAY SUAREZ: You talked about outsourcing and manufacturing. Isn't there also job loss in white collar and technical fields being experienced? Jobs going to India and the Asian rim? MARIA FIORINI RAMIREZ: And of course there's been a lot of talk about more recently. But I remember being in Mexico three years ago and the big problem was that they were losing jobs to China because it was cheaper to make things there than it was in Mexico. So we've gone through years of this already. Unfortunately, I think as we come out of it and the economy gets better, it is going to be hard to get the jobs back here. RAY SUAREZ: Lisa Lynch, earlier this month the private statistical group that sort of keeps the score book on recessions said that this one has been over for quite a long time and was shorter than the average recession. Yet the economy still continues to shed jobs. What's going on? LISA LYNCH: Well, this is... it's not unusual after a recession is officially declared over by the National Bureau of Economic Research to see, for example, that the unemployment rate continues to rise. But the usual story has been that the growth starts coming back into the economy, people that were discouraged come back in, start looking for jobs. You see an uptick in the unemployment rate. It takes a little while for employment to start growing again but then that kicks in. And then eventually with the growth of employment, you are able to absorb all of those new workers who have come back into the economy and absorb all those workers who have been unemployed for a long period of time. But what we are seeing with this recovery, is that we are not having that increase in employment growth that we've had in 20 odd months after the end of the recession. We're still not seeing that growth in employment that we've always seen in previous recoveries. So this has truly been a jobless recovery. Actually it has been a continued job contraction. Now, the unemployment rate is a lagging indicator in the economy, but it is worrying and I think you saw that reflected in the stock market today. It is worrying that we still do not have an increase in job growth in the U.S. Economy. RAY SUAREZ: Let me go around and quickly get everybody's forecasts for the next two quarters. Starting with you, Lisa Lynch. LISA LYNCH: Well, I think that there was some good news in today's report and that had to do with the temporary help industry as was mentioned earlier. That has increased. And that suggests that employers are dipping their toes into the water. They're hiring workers on. They're nervous, so they're hiring them on a temporary basis. But hopefully, as some of the fiscal stimulus associated with tax cuts, defense spending, the monetary stimulus that's in the economy from the actions of the Federal Reserve board, as those kick in, and as we see growth in other parts of the world-- we got some good data this week in terms of growth and this Japan's economy, some suggestion of flattening out or maybe some new growth in Europe-- as all that comes together in the second half of the year, hopefully we'll be on track to speed up this economy and create some jobs. RAY SUAREZ: Very quickly, Mark Vitner? MARK VITNER: Well, we think the economy is going to pick up a great deal of momentum in the second part of the year. The tax cuts are going to help out a lot, they're going to boost after tax income. We get at least 3.5 percent GDP In the fourth quarter, something closer to four in the fourth. I think we begin to add jobs in the next couple of months. I would not be surprised at all to see employment gains in the month of August. RAY SUAREZ: Finally, quickly, Maria Ramirez? MARIA FIORINI RAMIREZ: I think the worst is behind us. Balance sheets -- our companies are much better. The dividends are kicking in, checks are going out. Consumers are in better shape and I think that by year end we'll get some job growth and we're looking for GDP growth for the second half of the year 3 percent. And no Fed tightening for the next nine months or year but the market has done it for them already.