New jobs slowed to 51,000 in Sept.

October 07, 2006|By James P. Miller | James P. Miller,Chicago Tribune

CHICAGO -- The U.S. economy created only 51,000 jobs last month, the Labor Department reported yesterday, but despite that tepid performance the nation's unemployment rate declined to 4.6 percent from 4.7 percent.

The latest jobs report was ambiguous enough, in fact, that economic optimists and pessimists alike found evidence to support their views.

A number of experts suggested that the data show the economy is still expanding, but that it has downshifted to a slower growth rate in response to higher interest rates, a softening housing market and the domestic auto industry's continued slump.

The Bureau of Labor Statistics report "was actually not as weak as it appeared," said Danske Bank analyst Peter Possing Andersen, noting that details in the data contained "several signs of strength."

The monthly employment figures routinely draw scrutiny as investors, employers and economists seek clues about the state of the labor market and the health of the broad economy.

But September's report arrives at a sensitive time: After methodically raising interest rates over the course of two years, the Federal Reserve paused in its tightening campaign in August.

It's not clear whether the central bank will succeed in its effort to slow the economy and dampen inflationary pressures without causing a hard landing that jars the economy into a recession.

Many observers have predicted the Fed is done tightening and will begin reducing rates sometime in the first half of 2007. But some investors have been making bets the Fed will begin cutting rates sooner, by the end of the current year, thinking a weak jobs report would spur the Fed toward such a stimulative move.

At first glance, yesterday's report was disappointingly weak, with the jobs creation number coming in well below the 120,000 that analysts had been forecasting. The economy needs to create about 150,000 jobs monthly just to accommodate growth in the nation's work force.

Manufacturers shed a net 19,000 jobs, and retailers lost nearly 12,000 positions. Construction employment recorded a small gain as growth in nonresidential building more than offset the loss of 15,600 jobs in the residential construction sector.

The jobs report makes it clear that "the economy is making the transition from `Big Mo' to slow mo," said Ken Mayland of Clear View Economics. September's "paltry" job gain will provide a big boost to those who argue the Fed is done raising rates, he said.

However, the figures don't appear weak enough to support an early start to any Fed rate cuts. Among other things, an upward revision to the August data boosted the number of jobs created in that month by a whopping 60,000. As a result, the two latest months have generated an average of 120,000 new jobs.

In view of the underlying economic strength revealed in the latest jobs report, "talk of a near-term rate cut seems foolish," said Richard Yamarone of Argus Research Corp. in New York.

On Wall Street, stock prices softened slightly, and bond prices recorded a moderately bigger decline.

"Virtually everyone will be able to pull out stats from this employment report to support their economic forecast, be it recession, soft landing or even stronger growth ahead," said Bernard Baumohl, head of the Economic Outlook Group LLC in Princeton, N.J.

James P. Miller writes for the Chicago Tribune.

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