Jobless Rate Rises to 4.1% as Growth Slows Down
The economy showed further signs of slower growth during August as the unemployment rate edged up slightly, rising to 4.1% from 4%, but the business climate remained generally robust, the Labor Department reported Friday.
The news provided more evidence that the Federal Reserve won’t raise interest rates again for a while, analysts said.
The total number of Americans at work fell by 105,000 last month, but this reflected temporary census workers going off the government payroll as well as a telecommunications workers strike at Verizon.
The jobless rate remains close to the 30-year low of 3.9% reached in April. Labor markets are tight but inflation is under control, indicating that the economy is heading for the so-called “soft landing” sought by the Fed.
Rising interest rates generated by the Fed have made it more costly for businesses to borrow money to expand, and have slowed the pace of new home and office construction--without tipping the economy into recession. The Commerce Department’s report that construction spending fell 1.6% in July, the fourth-consecutive monthly decline, offered more evidence that the Fed’s tightening moves have had their desired impact.
Despite the erosion of jobs in areas such as construction and manufacturing, the general news is “good going into Labor Day; it is still such a rosy economy,” said Stephan Thurman, senior economist at the U.S. Chamber of Commerce. “It looks like the Fed has gotten the response they wanted,” he said. “They can afford to sit tight until after the election.”
The employment figures “clearly indicate that we are settling into a slower growth path,” said Gordon Richards, chief economist for the National Assn. of Manufacturers. Manufacturing employment fell by 79,000 during August.
Because the economy is basically strong, the Fed can forgo further rate increases, at least temporarily, and avoid being drawn into political controversy for any steps it might take in the final weeks of the presidential campaign.
Virtually all segments of the job market are expanding more slowly this year than they did during 1999. Construction employment has grown an average of 15,000 jobs a month this year, compared with 25,000 a month during 1999. Employment in the services sector has climbed 108,000 a month this year, down from 124,000 a month a year ago. And retail trade jobs are rising by 28,000 a month, compared with 36,000 a month last year.
This more moderate pace of growth means that Fed officials are likely to take a hands-off approach, analysts said.
“Many people thought that, with the election coming up, the Fed would be on hold for political reasons,” said Brian Jones, an economist with the investment banking firm Salomon Smith Barney. But Friday’s report and other recent news suggests that inflation is quiescent and gives the Fed board of governors “good fundamental reasons for remaining on the sidelines,” he said.
The Labor Department said there were 134.9 million Americans working last month, while 5.8 million were unemployed and seeking jobs. Average hourly earnings rose 4 cents an hour during August to reach $13.80.
During the last 12 months, average weekly wages have risen 3.8%. Productivity, or the value of the goods produced by each worker, is rising at an annual rate of 3%. The cost of labor--the difference between wages and productivity--is rising at an annual rate of less than 1%, a negligible amount, small enough to quell fears of a resurgence of inflation any time soon.
Employment in the private sector rose by 17,000 in August, but would have risen 102,000 without the effect of the strike.
Other surveys released Friday from the private sector reinforced the evidence from the Labor Department that the economy is slowing, but still strong.
The National Assn. of Purchasing Managers said its measure of manufacturing activity dipped in August, falling to 49.5 from 51.8 in July. Whenever the NAPM index drops below 50, that is an important sign that business is declining. The index is compiled from a variety of figures covering employment, orders and inventories.
On the consumer side, individuals have become more pessimistic about the economic outlook, the University of Michigan said in its monthly report, a closely watched barometer of consumer sentiment. The index dipped slightly from July.
The unemployment rates during August showed little change for the major population groups: men, unchanged at 3.2%; women, up from 3.7% to 3.8%; whites, up from 3.5% to 3.6%; blacks, up from 7.7% to 8%; and Latinos, up from 5.6% to 5.7%.
Another important sign of the economy’s strength is the high rate of participation in the work force--67% of all Americans age 16 and older were either working or seeking a job in August. The record rate is 67.6%, achieved in February.
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Manufacturing Slowdown
The National Assn. of Purchasing Managers’ index of manufacturing activity slid below 50 in August, which indicates a contracting manufacturing sector.
August: 49.5%
