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Chicago Tribune Business Outlook Column

Posted on: Sunday, 5 March 2006, 13:00 CST

By William Sluis, Chicago Tribune

Mar. 6--CHICAGO -- It's a scenario many would have regarded with disbelief a few short months ago: too many jobs, obtained too easily, and workers pulling down too much money.

Laughing yet? Well, silly as it may sound, too-fast employment growth is a possibility that has caught the attention of members of the Federal Reserve.

While the job market is hardly out of control, concerns are growing that worker shortages may come next. With joblessness at 4.7 percent, analysts note that the number of people receiving unemployment benefits is at a five-year low.

Economist Lynn Reaser says Friday's February employment report will show a slight uptick in joblessness, to 4.8 percent, while payrolls will register a gain of 190,000 positions. That's nearly even with the 193,000 new jobs registered in January.

"One factor during the latest month is that construction was slowed by weather, after record high temperatures in January, which gave a boost to the housing industry," she said. "Overall, corporations are displaying renewed confidence, and are putting out hiring signs. Workers again are in demand."

For now, members of the Fed shouldn't worry about the labor market becoming too tight, said Reaser, of Bank of America's investment strategies group in Boston.

"Worker productivity still is on the rise and wage growth has been in the range of 0.4 percent a month," she said. "Unless worker compensation starts to rise noticeably, the Fed won't feel that inflation is worsening. It's apparent that corporations have only limited pricing power."

It will be nearly another three weeks before members of the Fed gather to discuss interest rates, but a further squeeze on credit is a no-brainer. The central bank's Open Market Committee is expected to act March 28 to raise its overnight lending rate for a 15th time in 20 months, to 4.75 percent.

When Fed members boosted the short-term barometer on Jan. 31, they said borrowing costs may need to rise further. However, they are carefully watching data to confirm that the economy is rebounding, after growth tumbled to a three-year low of 1.6 percent in the fourth quarter.

The stock market has been hovering near its highest levels since late 2001, and many analysts view the current situation as offering a green light for buyers for the rest of this year. Fourth-quarter corporate profit reports are nearly complete and, for the 15th quarter in a row, earnings growth has been stellar. Upside surprises have thumped disappointments by a ratio of more than 3 to 1.

However, "it looks like this may be the last quarter of double-digit profit expansion," said Chicago investment analyst Dirk Van Dijk of Zacks Investment Research. During the current three months, he added, "earnings growth is expected to decelerate sharply."

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Copyright (c) 2006, Chicago Tribune

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BAC,

Source: Chicago Tribune

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