Job Growth Rate Slows, Cheering Wall Street : Unemployment Inches Up to 5.4% in July; Economy Added 193,000 Jobs
The U.S. unemployment rate inched up to 5.4% last month from a six-year low of 5.3% in June, and the nation added a moderate 193,000 jobs, the government said Friday, a report that subdued lingering fears of an overheating economy and kept alive the week’s brisk Wall Street rally.
Although showing somewhat less than expected job growth, the employment report also was interpreted by analysts to mean that inflation remains in check and, as a result, that the Federal Reserve Board will not boost interest rates any time soon.
Particularly encouraging to inflation-wary Wall Street, if not American workers, was the news that average hourly earnings fell 2 cents to $11.80 in July. That followed a record increase of 9 cents an hour in June. Two other reports released Friday, showing declines in consumer spending and factory orders, also signaled a slowing economy, dovetailing with other recent data.
“It indicates moderate growth,” said Dean Baker, an economist with the Economic Policy Institute, a liberal think tank in Washington. He added that July “wasn’t a bad month, but it’s certainly within what can be sustained” without igniting inflation.
All told, the news sparked a tremendous rally in bonds and stocks.
Even as the economy slows, it still appears to be growing substantially--just not as swiftly as in the booming second quarter of the year. On Thursday, the government reported that the nation’s gross domestic product this spring rose at an annual rate of 4.2%, up from 2% in the first quarter and 0.3% in the last quarter of 1995. At the same time, the government estimated second-quarter inflation at a tame 2.1%.
“What’s clear is that we had a very hot spring and it’s cooling this summer. It may be that bond yields, which rose earlier this year, are beginning to bite” and slow the economy, said David A. Wyss, research director for the economic consulting firm DRI/McGraw-Hill in Lexington, Mass.
Wyss predicted that the already low unemployment rate could head back down and that the nation will continue to gain 150,000 to 200,000 jobs a month during the third quarter of this year, raising a moderate threat of increased inflation. But, he said, “what the numbers today do is give the Fed a reason to wait” and not act to lift interest rates now.
Moreover, analysts expect that the Fed will avoid hiking interest rates not only at the upcoming Aug. 20 policymaking gathering but also at the next meeting on Sept. 24. The reason: The presidential campaigns will be running at full tilt by September, and the central bank would be reluctant to seemingly step into the fray.
Although analysts had expected the economy to add 200,000 or more jobs, they differed on the extent to which Friday’s report showed that employment growth was slowing. Robert A. Brusca, chief economist at Nikko Securities in New York, pointed to the buoyant trend of recent months, including a hearty gain of 273,000 jobs a month during the last quarter.
The recent months’ figures “are still firm, steady, strong. These are not numbers you would look at and say the economy is decelerating,” Brusca said.
Other economists, however, pointed out that July’s jobs figure was inflated by at least 10,000 temporary jobs related to the Olympic games in Atlanta. Also, the number of teachers on state and local payrolls rose 66,000, ostensibly reflecting extended school years for districts that suffered winter-related closings.
According to the report from the U.S. Bureau of Labor Statistics, the biggest share of new jobs in July, 89,000, were in retail trade, nearly half of those positions being at restaurants and bars. The previously booming service sector, however, produced only 28,000 new jobs, versus a gain of 90,000 a month earlier.
Construction employment was up 25,000, bringing to 208,000 the number of new jobs in the industry this year.
On the other hand, manufacturing employment fell by 20,000 and overall it has declined by 282,000 since its most recent high in March, 1995.
At 5.4%, the nation’s jobless rate remains moderate, up just slightly from June’s six-year low. The slight rise in jobless in July resulted from an influx of new job hunters into the labor market.
Among black males, for instance, the number either working or looking for work jumped 1.4% to 72.9% of the population, apparently signaling growing confidence in the job market.
Separately, the U.S. Commerce Department said consumer spending declined 0.2% in June, the first fall since January, when blizzards kept many shoppers at home.
The decline occurred despite a 0.9% jump in personal income, the largest since January, 1995, signaling that consumers may be trying to save money or pay down debt.
Another Commerce Department report showed that orders to U.S. factories, a key gauge of manufacturing strength, fell in June after rising for four months. Orders dropped 0.9% to a seasonally adjusted $311.2 billion.
