U.S. Payroll Growth Slows Sharply in June
U.S. employers sent a shiver through the political and financial worlds by adding only 112,000 net jobs in June, less than half what had been expected and too few to budge the nation’s 5.6% unemployment rate.
The Labor Department’s announcement Friday of the weak jobs showing left President Bush seeking to put a positive spin on the news before a gala White House gathering called to showcase what aides and economists had thought would be closer to a net gain of 250,000 jobs.
Coming only two days after the Federal Reserve started nudging short-term interest rates higher to protect against economic overheating, the employment report convinced some investors that the economy might not be all that strong after all. They reacted by pushing long-term interest rates, which are set by the marketplace, to two-month lows, betting that the disappointing numbers might relieve the Fed of having to push interest rates up quickly. Stock prices, meanwhile, generally fell.
Economists, however, appeared split on whether the economy was slowing, or just taking a break in an otherwise solid growth path.
“This shows we may have a weaker-than-you-think economy,” said Jose Rasco, senior economist at Merrill Lynch & Co. in New York. “Consumers are going into headwinds, and businesses are reacting by holding off on investment and hiring.”
Others, however, said the latest job numbers were a fluke and would be overtaken by stronger employment growth in coming months. They said the June number was still positive, and followed a string of even more positive monthly job numbers. It also brought to 1.2 million the number of new positions created since the start of the year, and came on the heels of several other reports, including one on consumer confidence, that suggest Americans see the job market as improving.
“It’s not surprising to see a hiccup during a recovery, and that’s what this is,” said Bank One Corp. chief economist Diane Swonk in Chicago.
Bush administration officials from the president on down sought to put the best face on the report. Bush told a gathering of small-business owners in the East Room of the White House: “Our economy is strong and getting stronger.... We’re witnessing steady growth.”
Treasury Secretary John W. Snow backed up his boss, saying, “The economy doesn’t move in a straight line up. It zigs and zags some.”
Meanwhile, Bush’s presumptive Democratic challenger, Sen. John F. Kerry of Massachusetts, used the kickoff of a Fourth of July weekend bus tour to blast the president’s economic record.
“This administration says to you that is the best economy of our lifetime,” Kerry told a crowd in Cloquet, Minn. “They say that this is the best we can do. They’ve even called us pessimists.
“Well, I say to them: The most pessimistic thing that you can say is that America can’t do better than we’re doing today,” Kerry declared.
Most mainstream forecasters still predict that the economy will grow at about a 4% rate for the rest of the year.
Nevertheless, the June jobs report included evidence of several kinds of economic weakness and crystallized a sense that rising gasoline prices, higher interest rates and a trailing off of the Bush-engineered tax cuts may finally be taking an economic toll.
The report showed that job gains in April and May totaled 581,000 -- 35,000 lower than previously reported. It suggested that manufacturing’s comeback from nearly four years of job losses stalled last month, as factory payrolls unexpectedly slid an additional 11,000.
The report also showed that the average workweek slipped from 33.8 hours to 33.6 while the manufacturing workweek fell from 41.1 hours to 40.8. Average hourly earnings increased by only 2 cents to $15.65. Over the last year, average hourly earnings have risen only 2%, or about in tandem with inflation.
“What these numbers mean is that we’re not out of the woods as far as the labor market is concerned,” said Jared Bernstein, an economist at the liberal Economic Policy Institute in Washington. “There’s still enough slack in the economy that employers don’t feel the need to bid up wages.”
Analysts said that some of June’s job gains were in stable, well-paying sectors. Healthcare and social service payrolls rose by 30,000, while professional and technical services added 23,000.
But other hiring reflected the continued tentativeness of the jobs recovery. Temporary agencies, for example, hired an additional 12,000 workers last month, bringing to 306,000 the number of positions they have added since their April 2003 employment low. Temp hiring usually jumps early in a recovery but levels off or declines as workers find regular employment.
Analysts said that the unemployment rate remained at 5.6% because the number of people entering the labor force in June exceeded the net increase in jobs. The unemployment rate in June was exactly where it was at the November 2001 end of the most recent recession.
The unemployment rate for African Americans rose to 10.1% from 9.9% in May. The rate for Latinos fell to 6.7% from 7%. Both were higher than the rate for whites, which remained unchanged at 5%, according to the Labor Department.
At the same time, the latest job gains brought the economy a step closer to making good on Bush’s prediction of 2.6 million new jobs by the end of the year. Although the June numbers were disappointing, the 1.2 million positions created in the first six months are almost half of what’s needed to hit that full-year goal. The president’s forecast was widely derided at the time he made it.
Still, June’s weak performance boosts the odds that Bush will reach Election Day saddled with the uncomfortable fact of being the first president since Herbert Hoover to have seen jobs decline during his term.
Some economists are beginning to wonder whether the president may have to contend with only middling economic growth as well. Less than a month after virtually every mainstream forecaster was saying that the economy had grown at a powerful 4%-to-5% pace in the just-finished second quarter, and that it would purr along at a similar pace for the rest of the year, a string of unexpectedly weak statistics has some of them backpedaling.
In rapid succession, the Commerce Department reduced its estimate of first-quarter growth to 3.9% from 4.4%, saying the nation had exported less and imported more than originally thought.
Two of the nation’s largest retailers, Wal-Mart Stores Inc. and Target Corp., announced that their sales had been disappointing, and a prominent index of chain-store sales dropped to its lowest level in 12 weeks. U.S. auto sales swerved from a 17.8-million unit annual pace in May to a 15.4-million unit rate in June. And factory orders, which had been rising, fell for a second month in a row.
Several firms -- among them Merrill Lynch, Wachovia Corp. and Bank of America Corp. -- reacted to the unexpectedly low June jobs numbers by slightly reducing their growth predictions for the rest of the year.
