Jobless Rate Rises to 4.5% as Economic Slide Persists

By ROBERT A. ROSENBLATT

July 7, 2001 12 AM PT

TIMES STAFF WRITER

WASHINGTON —

The nation’s jobless rate climbed to 4.5% during June, up from 4.4%, as the sputtering economy suffered a sharp decline in manufacturing employment, the Labor Department reported Friday.

The June job loss was 114,000, significantly more than expected. For the last three months, job losses totaled 271,000 as U.S. businesses responded to declining demand by cutting payrolls.

The manufacturing sector has been in a recession for eight months, a slowdown that may be spilling over into the rest of the economy, according to economists.

One potentially ominous sign came from the service sector, which supplies 80% of all economic activity, including everything from nail salons to software development firms. Service sector employment rose a minuscule 5,000 jobs during June, the Labor Department said.

The economy now seems poised at a delicate turning point. Optimists point to continued strength in consumer spending as well as recent encouraging reports of rising orders for merchandise. But pessimists note that the total number of people working has shrunk by more than 1 million this year and point to an increase in the number of Americans who are working part time because they can’t find full-time jobs.

“I guess I’m a little gloomy,” said Tom Palley, deputy public policy director at the AFL-CIO. “The loss of jobs during June shows the economy is on the borderline and can tilt into recession. Right now the American consumer is still spending, but if the job leakages continue, will that spending be sustained?”

Sung Won Sun, chief economist at Wells Fargo Bank, called Friday’s news “pretty depressing.” It is clear that “the manufacturing recession has spread to the service segment of the economy.” The collapse of dot-com companies is adding to the list of job casualties in the service sector, he noted.

The stock market often welcomes reports of increased unemployment, with some investors believing that a higher jobless rate will help restrain inflationary pressures. But Friday’s news was gloomy enough to send the market into a tailspin. The Dow Jones industrial average dropped 227.18 points, closing at 10,252.68. The Nasdaq index, a guide to the performance of high-tech stocks, fell 75.95, finishing at 2,004.16.

The Federal Reserve Board has cut interest rates six times this year, so there was no enthusiasm Friday for any additional action. Interest rate cuts usually take six to nine months to work through the economy, so the optimists believe the rate cuts soon will help turn around the economy.

“At this point, any additional rate cuts by the Federal Reserve will not make any more impact,” said Lawrence Yun, senior forecaster at the National Assn. of Realtors. “We should be seeing some recovery soon” from the earlier cuts, he said, noting that “real estate has been extremely resilient during the economic slowdown.”

Manufacturing employment fell by 113,000, with the biggest losses coming in the production of electronic equipment and industrial machinery. There was a lengthy litany of job losses: “Other sizable declines occurred in furniture, primary metals, fabricated metals, textiles, apparel, paper, printing and publishing, and rubber and miscellaneous plastics,” Katherine G. Abraham, commissioner of the Bureau of Labor Statistics, said in a statement accompanying Friday’s job report.

Factory employment has tumbled by 785,000 jobs in the last year.

The manufacturing sector has been undergoing a recession similar to the slump it suffered in 1990-91, a downturn that lasted nine months, said Gordon Richards, chief economist at the National Assn. of Manufacturers.

However, the national economy thus far has escaped the ravages of that downturn. “In 1990 and 1991, there was a huge drop in real estate values and construction and a downturn in consumer spending, and this spread to the entire economy,” Richards said. “That has not happened this time. Consumer spending and real estate values are still strong.”

Richards, one of the optimists, believes the economy is on the upturn, with stimulus underway from the Fed’s “very aggressive” rate cuts earlier this year and from the effect of the recent tax cut legislation signed by President Bush.

He believes industrial production will start to rise this month and that employment will begin increasing in September.

The Bush administration also said Friday that, despite the bad unemployment numbers, the economy is on the verge of a rebound.

“The stable economy is poised to take off after tax rebate checks begin to arrive at the homes of American taxpayers this summer and fall,” said Labor Secretary Elaine Chao.

Those taking a darker view of the economy point to a significant barometer of business weakness. The number of people working part time for economic reasons increased by 266,000 last month, climbing to 3.6 million. These are people who want to work full time but were working only part time because their hours had been reduced or they couldn’t find full-time work.

In the service sector, the tiny growth figure of 5,000 jobs for June came after a more robust gain of 65,000 positions in May. Health services, engineering and management jobs are growing, but these gains have been offset by large declines in jobs at hotels, amusement parks and recreation facilities, another sign of a slowing economy as companies and individuals cut back on travel and vacation activities.

Labor costs remained relatively noninflationary. Average hourly earnings rose 4 cents in June, to $14.29 an hour. Average hourly earnings have increased 4.2% and weekly earnings have risen 3.6% during the last year.

Among major population groups, the jobless rate last month was 4% for men, up from 3.9% in May; 3.8% for women, unchanged; 4% for whites, up from 3.8%; 8.4% for blacks, up from 8%; and 6.6% for Latinos, up from 6.2%.

Stocks slump: Profit warnings send the Dow down 227 points. C1

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The Unemployment Picture

Unemployment rate (seasonally adjusted)

June: 4.5%

Change in nonfarm

employment (in thousands)

June: -114,000

How Groups Are Affected

Teen agers

May: 13.6%

June: 14.3