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Hiring slows along with economy

Companies are taking a cautious approach to adding jobs, and in some cases adopting hiring freezes, as they try to figure out how to deal with economic uncertainty without big layoffs.

That caution could remove an outlet for job seekers and add to gloomy jobs numbers in coming months, with some economists predicting a rise in the unemployment rate.

Some companies already are cutting jobs, like financial titans Citigroup Inc. and Bank of America Corp. and automaker Ford Motor Corp., which announced an early retirement and buyout deal for 54,000 workers Thursday.

But Department of Labor figures dating from November show the number of workers affected by layoffs involving 50 or more employees is largely unchanged from a year ago. While a recession could change their minds, employers are reluctant to institute mass layoffs, which can result in the loss of skilled workers who are costly to replace when the economy improves, said John Silvia, chief economist at Wachovia Bank. Rather, many have put the brakes on hiring new workers in some or all of their operations. "A lot of firms have simply said the risks are too great to add workers," he said.

Clothing retailer Chico's FAS Inc., based in Fort Myers, Fla., put a freeze on hiring back-office employees, while auto-parts supplier ArvinMeritor Inc. initiated a freeze across most departments. Delta Air Lines Inc. has halted hiring for administrative jobs.

Some economists say that companies are moving more quickly to impose freezes than in the past, much as they have learned to respond quickly to weakening demand by working down inventory and curbing production. They also say that employers exercised more hiring discipline since coming out of the 2001 recession.

"If payrolls are leaner than they usually are when the economy softens, then companies may not have either the need or the scope to lay off workers en masse," said Goldman Sachs economist Ed McKelvey in a recent note.

December's unemployment rate ticked up to 5 percent from 4.7 percent in November, but economists disagree on whether it will get worse, and to what degree. David Rosenberg, an economist at Merrill Lynch, said in a note Tuesday that he expects job losses this year to total 2.5 million, similar to cuts in the last recession, and for the jobless rate to hit 5.75 percent by year's end.

Others are more sanguine. "I'm not betting on a string of monthly job losses," said Richard DeKaser, chief economist at National City Corp. in Cleveland. He predicts the jobless rate will rise to 5.25 [ercemt in the first half of the year and expects the weakest sectors to continue to be manufacturing, construction and financial services.

For the week ended Jan. 12, initial claims for unemployment insurance fell 21,000 to 301,000. The four-week moving average, which smoothes out the weekly volatility, fell to 328,500, a decrease of 11,750. It isn't clear the trend will continue with new numbers due today.

At many companies, hiring budgets are worked out in January, so freezes are being put in place this month at some places. Kent Kleeberger, chief financial officer of Chico's, said that the company has frozen hiring for back-office positions and that he is taking a hard look at other openings that managers were hoping to fill. "To be blunt, I'm also taking a look at existing positions in certain parts of the back office," he said. "The economic outlook is not exactly rosy for the first half of '08, and we have to play things closer to the vest." Chip McClure, chief executive of ArvinMeritor, told analysts in December that he put in place a hiring freez to weather "choppiness in the economy" that has hurt the commercial- and light-vehicle sectors in North America. A spokeswoman said the company will continue to fill positions "critical to run our business." Some companies have instituted hiring freezes in only parts of their operations. Delta has a freeze on hiring "noncustomer facing" positions, but plans to hire 1,000 flight attendants this year to support its growing international business, said spokeswoman Betsy Talton.

State and local-government agencies and universities that rely on state budgets in the red from a drop-off in revenues tied to the housing crisis also have put a hold on hiring. The University of Kentucky began a freeze Jan. 9 for all general-staff positions, from administrative to janitorial jobs, after losing $10 million of its $330 million budget. Spokesman Jay Blanton said the university was told by the state's governor that an additional 7 percent to 12 percent cut might come in the next few weeks. Blanton said the university is still hiring faculty.