Jobless Rate Is Steady at 4.5%
The Labor Department offered a struggling economy a small ray of hope Friday, reporting that the nation’s unemployment rate held steady at 4.5% during July and the net job loss was a modest 42,000.
Economists had expected a gloomier jobless tally, so the news generated some optimism that the business decline may have hit bottom and that the pace of activity will pick up, stimulated by low energy prices and the boost from tax rebate checks that have begun to arrive in consumers’ homes.
Because inflation remains well under control, many experts agree, there is still room for interest rate cuts by the Federal Reserve to stimulate the economy.
“Today’s report paints a much better picture than I was anticipating,” said Martin Regalia, chief economist at the U.S. Chamber of Commerce.
Even the loss of 42,000 jobs was partially offset by the Labor Department’s new estimate of the job loss the month before. What was initially estimated to be a loss of 114,000 jobs in June was reduced to 93,000.
“It looks like the national economy has bottomed out,” said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., a nonprofit business association.
“There is no further deterioration, and consumers are still shopping.” In typical downturns, he noted, both housing and auto sales “go in the tank, but both industries have held up well.”
Compared to the sluggish national economy, California has “forward momentum in a lot of sectors,” Kyser said. After a “brutal” second quarter, the tourism industry is on the rebound. The real estate market is strong in Los Angeles, he said, and while manufacturing activity is down in Los Angeles County, manufacturing employment is growing in Orange, Riverside and San Bernardino counties.
He added that the state is also being helped by a cooler-than-normal summer, which means “we aren’t having the energy supply problems a lot of people were expecting.”
The stock market greeted the report coolly, with the Dow Jones industrial average falling 38.40 points to 10,512.78. For the week, the Dow still had a gain of 96.11, or less than 1%. The Nasdaq composite index dropped 21.05 points Friday to 2,066.33, but for the week, the Nasdaq rose 37.26, or 1.8%.
The only persistently bad news in Friday’s Labor Department report came from the manufacturing sector, which has been in a year-long slump. It suffered a drop of 49,000 jobs in July, for a 12-month total of 837,000, most of them in high-tech. The manufacturing downturn has also hit hard at the companies that supply part-time workers.
Manufacturing firms have been burdened by the high value of the dollar in international trade. Because the dollar is strong compared to foreign currencies, U.S. exports have become very expensive for foreign buyers, and goods from abroad are comparatively cheap for U.S. consumers.
“Consumer spending and the housing industry have held up surprisingly well,” said Rep. Jim Saxton (R-N.J.), chairman of Congress’ Joint Economic Committee, at Friday’s hearing dealing with the unemployment report. “Fortunately, the economy seems to have avoided slipping into a recession, and there are indications that the slowdown may have bottomed out.”
Saxton joined the chorus of people who are calling for more stimulative steps by the Federal Reserve.
“I continue to believe that an easing by major central banks in the U.S., Europe and Japan should be considered to alleviate potentially deflationary pressures,” he said.
The unemployment rate, which dipped to a low of 3.9% last October, has essentially flattened out at 4.5% since April, with a dip to 4.4% in May.
The services sector, the main growth engine for the American economy, gained an additional 5,000 jobs last month, for a total of 1,119,000 over the last year.
Altogether, employers added a net 496,000 jobs over the last 12 months.
“The services industry also provided some of the very few bright spots in this month’s report, as substantial job gains continued in health services [25,000] and in engineering and management services [13,000],” Katherine G. Abraham, commissioner of the Bureau of Labor Statistics, told the committee.
Working to keep the economy from stumbling into recession, the Fed has trimmed interest rates six times this year for a total of 2.75 percentage points. But there is usually a lag of six months or more before the rate cuts make their way through the economy and affect growth.
Friday’s report means the job market is still weak enough to “warrant a further rate cut” by the Fed, said Tom Palley, deputy director of public policy for the AFL-CIO.
He said some disappointed job seekers were probably responding to the sluggish job market by abandoning their search for work and dropping out of the labor force. Those people are no longer counted as unemployed, and they do not influence the unemployment rate.
If the 848,000 workers who have dropped out of the work force since January were counted, Palley said, the unemployment rate would be 5.1%.
Among major population groups, the jobless rate during July was: men, 3.9%, down from 4%; women, 3.9%, up from 3.8%; whites, 4%, unchanged; blacks, 7.9%, down from 8.4%; and Latinos, 6%, down from 6.6%.
The Standard & Poor’s 500 index fell 6.40 to 1,214.35 Friday. For the week, the S&P; 500 was up 8.53, or less than 1%.
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Unemployment
Percentage of U.S. work force not employed, seasonally adjusted:
*
July: 4.5%
Source: Labor Department
