Unchanged jobless rate raises economy worries
By Leigh Strope
Associated Press
WASHINGTON — The nation's unemployment rate remained stuck at 5.9 percent in July with a disappointing 6,000 new jobs created, increasing worries that the fledgling recovery could be in danger of stalling out.
Yesterday's report by the Labor Department capped a week of dismal data in which economists' hopes for signs of a rebound were dashed. Analysts had expected about 60,000 new jobs for July instead of the meager 6,000. New hiring in the services industry was tempered by job cuts in construction and manufacturing.
"We're falling slowly behind, not moving forward," said Bill Cheney, chief economist at John Hancock Financial Services. "We have to run fast just to stay in place and we're not doing it."
Hawai'i's June unemployment rate rose 0.3 percent to 4.5 percent. For the first six months of the year, the state's figures have run an average of 1.5 percentage points below the national figures.
But yesterday's news on the Mainland could further hurt Hawai'i's sputtering tourism industry, which has been propped up by strong numbers of Mainland tourists, said Leroy Laney, a Hawai'i Pacific University professor of economics and finance.
"We are dependent on the national economy here and we are more dependent on the national economy than we were several years ago," Laney said. "The visitor industry here, of course, is struggling to come back so we're really watching the U.S. economy now. Those labor numbers are another sign that things may be weakening."
In another bleak report, orders to U.S. factories fell in June for the first time since February, dropping by 2.4 percent, the Commerce Department said. That marked the biggest decline in seven months. Analysts were forecasting a solid 0.5 percent gain. The weakness was widespread, suggesting the comeback in manufacturing is slowing.
The lackluster jobs report caused stocks to tumble on Wall Street with concerns that the economy isn't turning around as quickly as hoped. The Dow Jones industrial average closed down 193 points and the Nasdaq composite index slid 32 points.
Given the mixed outlook of recent economic indicators, analysts predict the Federal Reserve will leave short-term interest rates alone at its next meeting Aug. 13. Interest rates have been at a 40-year low all year, and most economists think they will remain unchanged through the rest of 2002.
The economy needs to generate 125,000 new jobs per month to keep the unemployment rate stable. Feeling pessimistic, economists expect the rate to top 6 percent in the next few months.
Until companies feel more secure about a recovery, they will be reluctant to make big commitments in new hiring and capital investment — key ingredients for a full and sustained comeback. The string of corporate scandals and a sinking stock market have added to their jitters.
"The economy hit an air pocket in July," said Sung Won Sohn, an economist with Wells Fargo & Co. "Shell-shocked by the stock market crash, businesses were cautious about hiring."
In a more upbeat report yesterday, the Commerce Department said that consumers — the economy's lifeblood — splurged in June, increasing their spending by 0.5 percent. Favorable incentives, such as free-financing offers, and warm weather enticed shoppers. Consumers had tightened their belts in May, with spending flat.
Americans' incomes, which include wages, interest and government benefits, grew by 0.6 percent in June, the strongest pace in two years. That followed a 0.4 percent advance in May. The figures were largely in line with analysts' expectations.
Solid income growth, rising home values and low interest rates have supported consumer spending. Analysts are hopeful that consumers — whose spending accounts for two-thirds of all economic activity in the United States— will keep their wallets open in the months ahead, aiding a recovery. But that could be difficult if the sluggish economy triggers more layoffs and worried consumers cut back.
In the jobs report, the services industry added 50,000 new positions in July, the fifth straight monthly gain. That was largely because of continued growth in health services. But those gains were offset by cuts in the construction industry, which lost 30,000 jobs last month.
The manufacturing sector also lost 7,000 jobs in July. The nation's manufacturers were hardest hit by the recession and saw hundreds of thousands of jobs evaporate. Even though the industry is on the comeback trail, it is continuing to shed workers, though at a more moderate pace. July was the fourth consecutive month in which job losses were less than 30,000. Losses averaged 109,000 per month last year.
