Is Economy A Glass Half-Empty?

In another dose of bad news for the U.S. economy, the nation's unemployment rate jumped to 4.2 percent in January, the highest rate in 16 months, the Labor Department reported Friday.

The jobless rate rose 0.2 percent — from a 4 percent rate in December. It's the biggest one-month jump since April 1999. The unemployment rate last stood at 4.2 percent in September 1999.

CBS News Correspondent Jim Axelrod reports manufacturing was the hardest-hit sector, losing 65,000 jobs last month and bringing total factory losses to a quarter million since June — enough, some analysts say, to make the "R" word apply to America's plants and factories.

"There's no doubt — manufacturing is in recession," says analyst Larry Wachtel of Prudential.

Some analysts have begun to express fears that this weakness could spread and end the nation's record 10-year stretch of uninterrupted growth.

But the figures don't guarantee that gloom and doom is on the horizon, according to Bank One analyst Diane Swonk.

"I think it's important to put into context what 4.2 percent unemployment actually means. That's the same kind of unemployment rate we had in September of 1999, which was an exceedingly robust economy," she said.

Yet auto industry figures indicate a clear slowdown. January marked the fourth straight month of declining sales. They're even feeling it in Beverly Hills.

"People are being careful what they buy. They're watching their monthly payments a lot more," says Ford dealer Peter Blacksberg.
That trend is troubling only when compared to last year, which was off the charts. As for current sales, says Swonk, "These are the kinds of levels of vehicle sales that a couple of years ago, the automakers would have been popping champagne bottles over."

Swonk is optimistic about the future.

"We're moving from extraordinary times to times that are going to be still incredibly good, but not incredibly perfect," she said.

So, while the stock markets may soften, the factory floors may slow and the car lots remain full, that doesn't mean the economy has lost its pulse.

Perhaps reflecting that optimism, in a separate survey conducted by the government, payrolls outside of agriculture unexpectedly rose by 268,000 jobs. But the increase was confined largely to construction and government jobs, both of which were affected by seasonal quirks, including weather.

The jobless rate had been at 4 percent in both November and December, but with the sharp slowdown in overall economic activity, economists are forecasting the jobless rate could rise to above 5 percent by the end of 2001.

In other economic news, there were conflicting reports about a big layoff at General Electric. A spokesman for the industrial giant told CBS Marketwatch that the company denied the accuracy of a BusinessWeek online report, which said GE was planning to cut 75,000 jobs due to its recent merger with Honeywell as well as the slowing economy.

The reports about GE's plans followed several high-profile layoffs this week: Automaker DaimlerChrysler announced it would eliminate 26,000 jobs, while online retailer Amazon.com said it would cut about 1,300 jobs, or 15 percent of its workforce.

Earlier this week, the Commerce Department reported that America's gross domestic product (GDP) grew at a rate of 1.4 percent during the final three months of 2000, the weakest performance in more than five years.

Amid the ongoing slowdown and fears of a possible recession, the Federal Reserve on Wednesday cut interest rates by half a percent for the second time in less than a month.

Also, U.S. consumer confidence in January tumbled to its lowest level in four years. Throw in high energy prices and the ongoing power crisis in California and it's a steady stream of bad news that could get even worse.