Help Wanted From the Fed : It looks as if the economy won’t get cracking on its own

Consumers are worried about their jobs, uncertain about the economy and just plain confused. Economic signals are mixed and the latest government employment report is hardly reassuring. Jobs are still in short supply, not a good sign for a recovery that is fragile and uneven at best. The Federal Reserve could help shore up consumer confidence by cutting interest rates.

The nation’s unemployment rate held at 6.8% in August, unchanged from the month before. The Labor Department also reported that 34,000 jobs were added to non-farm payrolls last month, a modest gain and less than expected by many economists.

The August job gains came mostly in manufacturing, which accounts for only 18% of U.S. jobs. Increased hiring on the assembly lines follows a pickup in durable-goods and factory orders. But weak showings continue in construction, wholesale and retail trades and the service sectors.

The fear now is that the pickup in manufacturing might be snuffed out unless consumers begin feeling confident enough to spend and buy the goods now in production. Otherwise, the fledging recovery could be seriously set back. Even the Bush Administration seems worried, admitting the economy is not yet “healthy,” only “improving.”

The Fed can boost economic activity by cutting interest rates--shaving a quarter point off the federal funds rate and a half point off the discount rate. The Fed lowered the federal funds rate last month but the discount rate has been unchanged since April. Lowering the discount rate would most likely prompt banks to reduce their prime rate, the interest they charge to their biggest and most creditworthy corporate customers. Other business and consumer loan rates, which are pegged to the prime, also would come down. That should help fuel consumer spending and fire up the recovery.