U.S. Payroll Growth Is Weak in July

U.S. employers added only 32,000 jobs in July, the government reported Friday, a weak showing that surprised Wall Street, heightened fears of an economic slowdown and may have dealt a setback to President Bush’s reelection campaign.

The performance fell far short of forecasts by economists, who had anticipated the creation of up to 250,000 net new jobs last month.

The news prompted investors to drive stock prices sharply lower, with the Dow Jones industrial average tumbling 147.70 points, or 1.5%, to 9,815.33 -- its lowest level of the year.

Yet the nation’s July jobless rate, which is based on a separate survey of employment, fell slightly to 5.5% from 5.6% in June, the Labor Department said, its lowest level in 2 1/2 years.

Democratic presidential candidate Sen. John F. Kerry (D-Mass.) quickly seized on the meager job gains to scoff at Bush’s recent claims that the economy had turned a corner.

“Unfortunately, today’s job numbers further demonstrate that our economy may be taking a U-turn instead,” Kerry said in a statement.

Since Bush took office in early 2001, the nation’s economy has had a net loss of 1.1 million jobs. The latest report greatly increased the likelihood that he would be the first president since Herbert Hoover to see jobs decline during his term.

“We’re not satisfied,” said Treasury Secretary John W. Snow. But he also noted that, despite July’s small gain, job growth has continued for 11 straight months, and that “the economy continues to move in the right direction.”

The data released Friday sowed confusion about the economy’s strength and raised questions about what course the nation’s central bank may take in the coming months.

The Federal Reserve Board’s policymaking arm is still widely expected to nudge its key short-term interest rate higher when it meets Tuesday. But the weak job numbers could preclude any additional hikes for a while, analysts said.

In July, the 32,000 added jobs lifted total payroll employment to 131.3 million.

Keitaro Matsuda, senior economist at Union Bank of California, said that if the job-growth numbers “don’t turn around significantly in the next two months, it will give Sen. Kerry a great deal of ammunition to attack President Bush’s performance.”

Some analysts suggested that the president’s plan to stimulate the economy through tax cuts may have run its course -- with little behind it to keep the momentum going.

“This raises some serious questions about how strong the economy is now that the stimulus from the tax cuts has abated,” said Barry Bosworth, a former Carter administration official and now a senior economist at the Brookings Institution, a nonpartisan group in Washington.

Not all of Friday’s economic news was negative.

The Labor Department said its survey of households -- which includes agriculture workers and the self-employed -- again showed a picture vastly different from the employers’ payroll survey, with a whopping 629,000 jobs being added in July, to 139.7 million.

Bush pointed to the household survey to declare that Friday’s combined job figures were “mixed,” and he asserted that “economic growth is strong and getting stronger.” He made the comments at a conference of minority journalists in Washington.

Many economists consider the payroll survey a more reliable barometer of job growth. The payroll figure is based on information from about 400,000 businesses and government agencies, while the sample size in the household survey is about 60,000.

Robert MacIntosh, chief economist at the investment firm Eaton Vance Corp., said the July results had to disappoint Bush because they were the last monthly job figures before the Republican National Convention.

“It doesn’t help Bush, because pretty soon voters are going to lock in their thoughts about the economy and how it’s doing,” he said. “But it’s still growth. It’s not like we’re in a recession.”

The growth in jobs -- that is, the non-farm payroll employment reported by employers -- has now declined for four consecutive months. In addition, the Labor Department on Friday reduced previously reported payroll numbers for June and May by more than 50,000 jobs combined.

The areas of job loss last month indicate that consumers might be paring their spending in the face of higher interest rates and gasoline prices.

In July, the retail industry lost 19,100 jobs, to 15 million, and the hotel business lost 4,600 jobs, to 1.76 million. The finance and insurance sector lost 25,200 jobs, to 5.93 million, with the mortgage, securities and insurance fields all showing declines.

Some manufacturing industries, such as machinery, computers and furniture, showed modest gains in employment. Job growth also occurred in home-healthcare services, outpatient-care centers, hospitals and child day-care services.

But many companies have shown that they can keep improving output without having to add to their employment ranks.

“We have had great productivity increases running at 7% and 8% the last two years,” Dieter Zetsche, chief executive of DaimlerChrysler’s Chrysler division, said this week. “Flat employment is what we expect to happen based on considerable growth for us and ongoing productivity gains.”

In Southern California, some companies remained cautiously upbeat.

Jakks Pacific Inc., a Malibu-based toy maker, is “quite comfortable” about its prospects but is only filling jobs as they come open, spokeswoman Genna Goldberg said.

Avery Dennison Corp., a Pasadena-based maker of adhesive labels, is doing some selective hiring, but “our employment numbers this year have been stable,” spokesman Charlie Coleman said.

One bright spot locally are the ports of Los Angeles and Long Beach, which are expected to hire at least 3,000 new workers to handle a surge of Asian imports.

Some economists -- reflecting previous comments by Federal Reserve Chairman Alan Greenspan -- said the July jobs reports and other recent economic data reflected a temporary blip in the economic recovery, partly as a result of a spike in oil prices.

“It will take a while longer for the economy to move out of the soft patch,” Sung Won Sohn of Wells Fargo & Co. said in a report. “However, the recent economic weakness is temporary.”

The overall economy, as measured by the nation’s gross domestic product, grew at a robust clip of 4.4% in the first quarter of this year. Job creation was stronger then, with employers adding 308,000 jobs in March, for example.

That prompted the Federal Reserve in June to start lifting interest rates in an effort to prevent the economy from overheating and fanning inflation.

Meanwhile, GDP growth has slowed, rising at an annual rate of 3% in the second quarter.

Sensing that the Fed might now back off additional rate increases, investors Friday bid up prices of Treasury notes and other government securities, which caused their interest rates, or yields, to fall.

Ironically, lower rates tied to the weak job growth might help stimulate the economy further. That’s because more people could jump into the market for mortgage loans, either to buy a house or to refinance their existing mortgage.

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Times staff writers Bill Sing, Dawn Wotapka, Debora Vrana, Julie Tamaki, Ronald D. White and Times wire services contributed to this report.