July job growth falters

gain is smallest of year

Increase of 32,000 falls far short of expectations

August 07, 2004|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

U.S. employers added 32,000 jobs to their payrolls last month, the smallest gain this year and another sign of sharply downshifting economic growth.

Economists expected about 230,000 new jobs in July, about seven times as many as were created, leaving them pondering whether the second straight month of weak job growth is a trend or a short rough patch.

With lackluster consumer spending in June, rising oil prices and falling stock prices as a backdrop, it's more paint on a grayer-than-expected economic portrait, prompting another round of heavy selling on the stock market yesterday.

The Dow Jones industrial average shed 147.7 points to close at 9,815.33, while the Standard & Poor's 500 index and the Nasdaq composite index fell to lows for the year. The S&P was down 16.73 points to 1,063.97, and the Nasdaq fell 44.74 points to 1,776.89.

The unemployment rate improved slightly, to 5.5 percent from 5.6 percent in June, as the labor force swelled, the Labor Department said yesterday. But that estimate is based a less reliable survey, economists say.

Stephen Stanley, chief economist with Connecticut-based RBS Greenwich Capital, called the payroll growth "miserable."

"We got that big pop in the spring, and now things seem to have all of a sudden ground to a halt," he said. "I can't imagine that anybody in the White House is happy about these numbers."

President Bush, speaking to supporters during a campaign stop yesterday in Stratham, N.H., didn't comment on the July jobs report but reminded his audience that he responded to the 2001 recession with "well-timed tax cuts."

"Remember what we've been through. We've been through a lot," he said. "We've been through a recession, we've been through corporate scandals, we've been through a terrorist attack. But we've overcome these obstacles."

Democratic challenger John Kerry shot back with this statement: "The president keeps saying we've turned the corner. But unfortunately, [these] job numbers further demonstrate that our economy may be taking a U-turn instead."

Economic performance - more specifically, how undecided voters think the economy is faring - could be the deciding factor in a race that the polls indicate will be close-fought.

A poll this week by Fox News and Opinion Dynamics showed Kerry slightly ahead of Bush overall. An ABC News/Washington Post poll found that an increasing proportion of voters - about 52 percent to Bush's 41 percent - think the Democrat would do a better job handling the economy. The president held a smaller lead on terrorism issues.

Also yesterday, the Labor Department revised downward by 61,000 the employment gains reported earlier for May and June. The number of jobs created last month makes up for about half that.

Besides failing to meet expectations, the July gain also fell far short of the approximately 150,000 jobs that economists say must be added monthly to absorb growth in the work force. Patrick Fearon, an economist for A.G. Edwards & Sons Inc. in St. Louis, saw some bright spots in last month's statistics, however. The employment report that indicated a small drop in the unemployment rate showed a large increase in the number of people working or looking for work.

The employment report also suggested that 629,000 more people were working last month than in June, which might mean that job creation is better than it looks.

The Labor Department gets its job-creation data from a broad survey of employers and its labor-force statistics from a smaller sampling of households.

Economists generally consider the household statistics, which are more volatile, less reliable, but in this case, Fearon said, the survey matches up better with a rise in consumer confidence last month.

"We think, looking at the bulk of the economic data, the economy still seems to be in a position to grow at a good pace," he said.

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, is much more pessimistic. He said the economy has been supported since the recession by soaring housing prices - which contributed to construction employment and consumer spending through home equity loans - and "that is going to come to an end, if it hasn't already."

"The economy doesn't really have an engine at this point because, with the borrowing boom ending, you aren't going to see any big boost to consumption," he said.

Andrew Hodge, group managing director for North American economics at the international forecasting company Global Insight, said the economy is faltering but that "it's substantially downshifting." Earlier, he had expected monthly growth of more than 200,000 jobs the rest of the year. He now thinks 150,000 might be more realistic.

"It's a less vibrant recovery we're looking at," he said.

"It's now at least even money," Hodge said, that the Federal Reserve will not raise interest rates when it meets Tuesday to weigh inflation risks against the nation's economic performance.

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