U.S. Economy Grows Despite Jobless Rate Rise

The nation’s unemployment rate edged up to 6.1% in July from 6% in June, the government reported Friday, but the slight rise masked a vigorous gain in employment that ignited investor fears of renewed inflation and raised the odds of the Federal Reserve Board boosting interest rates again.

California’s jobless rate climbed more sharply, rising to 9% last month from 8.3%, as the state’s sluggish economy continued to lag behind the nation and produced skimpy job increases. In Los Angeles County, the unemployment rate was 10%, down from 10.1% in June.

Nationally, analysts and investors focused on a stronger-than-expected gain of 259,000 jobs last month in the closely watched survey of employer payrolls. Also suggesting robust economic growth were increases in both average hourly and weekly earnings.

The job gain is “a very healthy increase and what it says is that businesses are still catching up with the fact that they didn’t do any hiring for so long,” said Cynthia Latta, an economist with the consulting firm of DRI/McGraw-Hill in Lexington, Mass.

But Latta, echoing concerns on Wall Street about the prospects for inflation, said “there’s got to be pressure out there pretty soon in the job market for higher wages.”

Wall Street over the past week had focused on reports suggesting that the nation’s 3-year-old economic recovery was slowing slightly. Consequently, investors began anticipating that the Federal Reserve would not raise interest rates soon. But based on today’s reports, investors “changed their minds again,” Latta said, and turned their attention to the Fed’s upcoming Aug. 16 meeting.

Bond prices fell more than one point, pushing up yields on 30-year Treasury bonds to 7.54% from 7.4% late Thursday. The Dow Jones industrial average dropped 18.77 points to close at 3,747.02.

So far this year, employers have added a hefty 2 million jobs to their payrolls, a strong surge that is encouraging more people to enter the labor force. One side effect of the influx of job hunters, though, was the jobless rate rose last month even as many new jobs were being generated.

Last month’s job gain was down from the 356,000 increase in June but the July total, economists said, was held down by such factors as the strike at Peoria, Ill.-based Caterpillar Inc.

During July, the economy showed its biggest gains in services and retail trade, with restaurants, supermarkets and furniture stores all reporting increases. More workers also were added by temporary employment agencies, one of the fastest growing segments of the economy.

President Clinton proclaimed that “the future looks good,” alluding to employment figures during a Rose Garden ceremony marking the first anniversary of Congress’ passage of his deficit-reduction program. Clinton said his program “helped drive those interest rates down and got this economy moving again.”

Republicans dissented. “The truth of the matter is, the President inherited a good economy when he came in,” Senate Minority Leader Bob Dole (R-Kan.) told reporters, adding: “All he had to do was make sure he didn’t mess it up. The economy is continuing to look fair but it’s not running wild.”

California’s jobless rate remained the highest among the 11 big states whose employment figures were released Friday. North Carolina posted the lowest rate, 4.7%.

Given the relatively small sampling on which the state figures are based, California’s jobless rates often are volatile. And even with last month’s increase to 9%, it remains well below the 9.6% rate in April and the 1994 high of 10.1% in January.

Economists generally considered the state employment figures mediocre, but there was enough ambiguity in the statistics for varying interpretations--particularly by politicians.

For instance, Gov. Pete Wilson called the increase in the jobless rate a “temporary statistical variation” caused in part by seasonal forces, such as students entering the job market.

He added that “trends over the last several months have been moving in the right direction. We are encouraged in the fact that more people are seeking work,” even though the rise in the number of job hunters helped push up the unemployment rate.

But Wilson’s Democratic opponent in the Nov. 8 election, state Treasurer Kathleen Brown, said the disparity in figures nationally and for the state indicated to her that California “continues to be a drag” on the U.S. economy.

“I have to tell you I don’t see it as a recovery,” she said in an address in Long Beach to a group of women business executives.

The payroll survey showed a gain of 8,100 jobs in California during July, mainly in services and manufacturing. On the other hand, employment in retail and whole trade was down 3,500, and small declines were posted in three other industrial categories.

The state’s figures reflect “a pretty flat economy,” said Tom Lieser, an economist with the UCLA Business Forecasting Project.

Friday’s employment reports provide further evidence that California’s disastrous economic slide since mid-1990 has “bottomed out,” Lieser said, “but we’d like to see more snap to the recovery.”

Ted Gibson, an economist for the state Department of Finance, said other economic indicators show that the state’s actually is doing better than Friday’s employment figures suggest.

He pointed to strong gains recently in the state’s retail sales and payroll taxes, along with the continued strength of the housing market despite recent increases in home mortgage rates. “We’re moving ahead,” he said. “Not as rapidly as we’d like, but we’re moving ahead.”

Gibson also said he was encouraged that the state’s economy has been adding jobs lately despite continuing cutbacks in U.S. defense spending that have devastated California’s aerospace industry.

At the same time, Friday’s figures included downward revisions in job totals for both May and June.

As a result, even with the job increase in July, the latest figures show California’s employment as being down 8,100 over the last three months since April and up only 6,800 since the end of last year. By some estimates, the state’s job total is still down by more than 800,000 since employment peaked in mid-1990.

Rosenblatt reported from Washington and Silverstein from Los Angeles. Times political writer Bill Stall in Los Angeles also contributed to this story.

* MARKET REACTION: Bond yields soar on the report of strong job creation. D1

Jobless Rates

Here are U.S. and California unemployment rates, in percentages, over the last year:

U.S. Calif. July 6.1 9 June 6 8.3 May 6 8.3 April 6.4 9.6 March 6.5 8.6 Feb. 6.5 9 Jan. 6.7 10.1 Dec. 6.4 8.7 Nov. 6.5 8.6 Oct. 6.8 9.8 Sept. 6.7 9.4 August 6.7 9 July 6.8 9.8