Sluggish Job Growth Could Affect Elections

The U.S. economy added a disappointing 51,000 jobs last month, the government said Friday, and although hiring in July and August was revised sharply higher, lackluster employment growth is still expected to dog Republicans in upcoming midterm elections.

The economy is slowing from last year’s pace but has proven to be resilient, weathering a housing slowdown while providing modest wage gains in recent months. Falling energy prices have also helped. On Friday, investors pushed up bond yields, signaling faith that the economy won’t slow as much as they once believed.

But President Bush and his party have struggled to capitalize on such gains, analysts and polls say. Even with the Federal Reserve pausing its campaign to raise interest rates, Republicans face voters worried about jobs and the possibility of a recession.

As a result, Republicans could lose several seats in both houses of Congress, analysts say.

“There’s an uncomfortable problem for Republicans right now -- which is the economy is headed toward slower growth in response to Federal Reserve policy,” said Kevin Hassett, director of economic policy studies at the conservative American Enterprise Institute in Washington.

“The economy has been doing well in recent years and Republicans may not have received enough credit, but that’s all going to become irrelevant in November because we’re getting all this disappointing data,” Hassett said.

Analysts had expected 120,000 new jobs for September, and instead saw the slowest monthly job growth since October 2005, according to data from the Labor Department on Friday.

The economy has added an average 137,000 jobs a month this year versus 165,000 last year. Employment grew 1.2% this year, down from 1.5% last year and 1.6% in 2004, according to the Labor Department.

Offsetting the disappointing September data were revised Labor Department figures showing that 188,000 new jobs were added in August, 60,000 more than originally reported. July hiring was also revised higher by 2,000 jobs, to 123,000. That brought the average monthly jobs gains to 121,000 this quarter.

The Labor Department also revised upward by 810,000 its estimate of the number of new jobs added in the 12 months ended in March, bringing that period’s monthly average up to 200,000. A final estimate is expected in February.

The unemployment rate fell to 4.6% in September from 4.7% in August.

Some analysts pointed to September wage gains as a sign of increasing economic strength. Average hourly and weekly earnings rose 0.2% last month, and both are up 4% for the year. Analysts said that could lead to wage gains beating inflation if oil prices don’t rise again soon.

“There are risks to the economy going forward, but I don’t think this particular report shows risks,” said Ethan Harris, chief U.S. economist at Lehman Bros. in New York. “I think this shows an economy that’s doing well.”

Still, Democrats continued to seize on sluggish job creation and wage gains. Sen. Jack Reed (D-R.I.), ranking Democrat on the congressional Joint Economic Committee, released a statement Friday berating the administration for creating fewer jobs than in past recoveries.

“Job growth has been quite modest and wages have not kept pace with high energy prices and soaring healthcare costs,” Reed wrote.

Bush touted Friday’s job numbers during a morning visit to a FedEx Corp. office at Ronald Reagan Washington National Airport with Treasury Secretary Henry M. Paulson Jr., and deployed Cabinet members to spread the message nationwide.

“Wages are going up, energy prices are falling, which means people are going to have more money in their pocket to save, invest or spend,” Bush said.

Californians were almost evenly divided on the economy in the coming year, with 45% expecting good times, 43% expecting bad times and 12% undecided, according to a poll released last week by the nonpartisan Public Policy Institute of California in San Francisco. Likely voters were more optimistic: 48% expected good times ahead; 40%, bad times; and 12% undecided.

One reason for increased consumer confidence may be lower gasoline prices, which dropped to a national average of $2.31 this week, according to the Energy Department.

“The easing of gas prices is one of those signals in the economy that tells people they don’t have to worry about inflation and rising prices as much as they might have been feeling,” said Mark Baldassare, the institute’s research and survey director.

Homeowners who have seen the value of their homes double in recent years have reason to feel encouraged too, said Dean Baker, co-director of the left-leaning Center for Economic and Policy Research in Washington. Employment was up last month in construction, and the sector added 36,000 jobs during the last three months. Real estate held steady, employing 2.1% more workers than this time last year.

But homeowners who have borrowed heavily against their homes now worry that, as housing sales and starts fall, prices will nose-dive, Baker said. Federal Reserve Chairman Ben S. Bernanke warned earlier this week that housing is likely to undergo a “substantial correction.”

“Certainly in large chunks of the country -- the East Coast, California, Florida, Seattle -- housing has been going up and now that they see a turn. That has to be kind of scary,” Baker said. “People’s confidence about the future is limited. We’ve sort of been treading water but there’s a lot of bad signs on the horizon.”

Manufacturing and retail both shed jobs last month: 19,000 in manufacturing, including 3,800 at textile mills, and 11,900 in retail. Manufacturing has lost 12% of its workforce during the last year.

Harris, the Lehman Bros. analyst, predicts that the economy will weather the housing slump and add an average 100,000 jobs a month during the next year, growing at an annual rate of 2.5% during the next three to four quarters as it coasts toward the Fed’s intended soft landing. The economy grew 2.6% in the second quarter after posting a 5.6% rate in the first three months.

On Friday, Harris joined the consensus among analysts, who expect the Fed to pause again at its next meeting Oct. 24 to see how much the economy is slowing, rather than raise interest rates to combat signs of wage inflation in the jobs report.

“They’ve got a tough choice” between fighting inflation and preventing a recession, Harris said. “You can’t fight both wars at the same time.”

molly.hennessy-fiske@latimes

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