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"Businessweek": Unemployment Rate Holding Steady Is 'Good News'

Aired January 5, 2001 - 1:01 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

NATALIE ALLEN, CNN ANCHOR: Are we headed for a soft landing or hard times? New figures today have rekindled an ongoing debate about the future of the economy. They show the unemployment rate holding steady at a modest 4 percent. But they also show that private payrolls grew by just 49,000 jobs in December.

We've asked Myron Kandel of CNN Financial News to sort our these new numbers for us.

High, Mike.

MYRON KANDEL, CNN FINANCIAL EDITOR: Well, hi, Natalie.

You know, there are some people on Wall Street who think they've been shot in the head today after that exuberance on Wednesday when the Federal Reserve cut interest rates and the market exploded upward. But if you look at the figures today, they indicate a slowing economy, which we knew all along: the fact that the unemployment rate did not go up, as some people expected, stayed at 4 percent, that's close to a 30-year low; and the fact that you mention about the new jobs. There were over 100,000 jobs created last month, but more than half of them were in government positions and not in the private sector. So that's a very low figure for the private sector. And that's another indication that the economy is indeed slowing and slowing rather sharply.

ALLEN: All these numbers combined that point to the economy, do they point to a recession?

KANDEL: Well, that's too early to say. And, actually, I think they remove a little of the fear of recession. One economist we interviewed earlier today said he put the chance of recession at 15 to 20 percent, and that's a little lower than it has been in recent days: 80 percent chance of no recession.

The verdict is still out whether there's going to be a hard landing for the economy or a soft landing. We need some more economic figures to indicate that that really will be. But obviously the fed was concerned enough to cut interest rates earlier and more sharply than had been expected, Natalie.

ALLEN: Myron, thanks.

For more now on the story, here's Lou.

LOU WATERS, CNN ANCHOR: OK, Natalie, we're going to speak with Kathleen Madigan, who is associate business outlook editor at "Businessweek" magazine. She joins us from New York.

Welcome. Let's start with the unemployment numbers. You heard what Myron Kandel had to say about it. Good news? Bad news?

KATHLEEN MADIGAN, "BUSINESSWEEK": Oh, you know, it's more calming news than I would have expected given the Fed's action this week. You know, the fact that the unemployment rate held steady is good news. And at least we're making -- you know, we're creating jobs. It's true that job growth has slowed tremendously compared to a year ago. But, you know, a sign of a recession is when payrolls actually decline.

WATERS: Kathleen, you write in the Jan. 8 edition of "Business" magazine and ask the question, "Are we talking ourselves into a recession?" Let's get to the psychology of all of this. There's been talk recently because of statements by Dick Cheney, George W. Bush and others that perhaps we may be talking ourselves into a recession.

MADIGAN: Yes, you know, in the past, economists would have refuted that idea. But what's different now is that so many consumers are invested in the stock market. And, you know, psychology has such a tremendous effect on stock prices, so that if stock prices go down and people cut back on their spending because they see their portfolios decline, that, you know, creates more profit warnings and so people get even more worried, they cut back their spending even more, and all of a sudden we have this vicious cycle and we spiral down into a recession.

WATERS: So was it the negative aspects of the economic slowdown on Wall Street that forced the Fed into the decisions this week?

MADIGAN: Well, you know, the Fed would never say that they act to bolster the stock market, but certainly they're aware of the wealth effect that courses through into consumer spending. We think what really turned their heads was the very weak purchasing manager index on Tuesday which confirmed what we suspected, that manufacturing is in a recession.

WATERS: Well, let's take a second here to talk ourselves into preventing a recession.

MADIGAN: OK.

WATERS: You also write, "the point is that despite all the negative talk and worry, economic activity, while slower, is holding up." So there are positive signs, you think?

MADIGAN: Right. And then the employment report we got this morning kind of verified that. You know, like I said, you know, we are still creating new jobs. And part of the -- what was holding back jobs in December was the really bad weather in the Midwest and plains states. And so we're going to have to wait and see what happens in January and February to get a true read of how the labor markets are holding up.

WATERS: Let's hope for the best.

Kathleen Madigan, thanks so much. Economics editor, "Businessweek" magazine.

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