Steady 5.2% Jobless Rate Eases Fears of Recession

Allaying fears that the economy was about to slide into recession, the Labor Department reported Friday that the overall jobless rate remained unchanged last month at 5.2% as business and government put another 170,000 people to work.

The broad-based job gains for July came on top of an unexpected upward revision of employment growth in June to 250,000 from a previously reported 180,000, providing solid evidence that the economy remained on a sluggish growth track as the summer began.

“This blasts right out of the water the theory that the economy was teetering on the edge of recession,” said David Levine, chief economist at investment firm Sanford C. Bernstein & Co. in New York.

But the comforting news for the economy led to woes on Wall Street, where many financial traders had been counting on fresh signs of weakness to prod the Federal Reserve to push interest rates down another notch. Over the past two months, the central bank has taken three modest steps to ease credit, but analysts now expect it to put any further moves on hold.

“This clearly dashes any hopes of additional (Fed) easing,” said William Sullivan, a Fed-watcher at the investment firm of Dean Witter Reynolds in New York. “The economy showed some signs of restrengthening as the third quarter got under way.”

As soon as the jobs report came out, the bond market headed sharply lower, pulling the stock market down with it.

“A splash of cold water in the face,” said Irwin L. Kellner, chief economist at Manufacturers Hanover Trust in New York.

The civilian unemployment rate, which does not include members of the armed forces, nudged down to 5.2% from 5.3%--leaving it essentially on a plateau of either 5.2% or 5.3% over the past four months.

The employment report, which provides the earliest reliable evidence on the health of the economy during the previous month, showed that construction rebounded in response to this spring’s lower interest rates and suggested that retail activity may be starting to improve after months of lackluster consumer spending.

Although auto production took a sharp, but apparently temporary, plunge in July, the evidence also pointed to a modest revival in most manufacturing industries. After three months of declines, industry posted a slight 3,000 gain in jobs despite a dip of more than 10,000 jobs among auto makers.

Encouraging Signs

Another encouraging sign that manufacturing is over the worst of its recent slump was a slight gain in factory overtime to 3.9 hours a week from 3.8 hours in June while the overall factory work week held steady at a historically strong level of 41 hours.

Michael Boskin, the Bush Administration’s top economic adviser, said the jobs data “suggest the economy is continuing to expand,” bringing to 20 million the number of new payroll jobs added to the economy since the last recession ended in late 1982.

Adjusting for seasonal variations, 119.1 million people were employed last month, while 6.5 million workers were without jobs, according to the Bureau of Labor Statistics’ nationwide survey of households.

In California, the jobless rate fell to 5.3% from 5.6% in June, leaving an estimated 13.67 million at work and 769,000 jobless workers in the state’s labor force.

To the Fed, which has been trying to slow the economy to dampen inflationary embers without going overboard and causing a recession, “this report should provide a good bit of comfort,” said Lyle Gramley, a former Fed governor who is now chief economist at the Mortgage Bankers Assn. in Washington.

“There must have been some fingernail biting going on about whether they had been too tight,” Gramley added, “but it now looks like there’s a good chance the economy is going to pull through this year without a recession.”

Gain in Wages

David Jones, a market analyst at Aubrey G. Lanston & Co. agreed: “What these numbers confirm is that we seem to be headed for a soft landing instead of a crash landing that many people had feared.”

After two months of little gain in wages, average hourly pay of private sector wage earners rose a sharp 0.8% to $9.70, and weekly earnings jumped 1.7% to $338.53.

Some economists worry that low unemployment will lead to inflationary wage gains, but so far there is evidence of only modest upward pressure on wages.

White adults appeared to be nearly at full employment, with the jobless rate only 3.8% for men and 4.3% for women. Among blacks, the overall jobless rate was 10.9%, down from 11.9% in June. Unemployment rose among Latinos to 9% from 8.1%.