Job growth loses momentum
By Michael Oneal
Chicago Tribune
Just when it seemed the U.S. job market was finally out of the woods, payroll growth slowed sharply in June, surprising economists and raising more anxiety about the economy.
The Labor Department reported yesterday that employers added only 112,000 jobs during the month and it shaved 35,000 from previous estimates of job growth in April and May.
The unemployment rate stayed put at 5.6 percent, but that was largely because 305,000 more people were looking for jobs during the month, expanding the total workforce.
Economists were slow to draw any conclusions from just one month's data, but were clearly taken aback by the weak report.
"It's a very strange development," said economist Laurence Meyer, a former governor on the Federal Reserve Board.
Not only did job growth skid to less than half the average rate of 304,000 jobs over the previous three months, but wages slowed to a crawl and continued to trail inflation.
Some high-wage occupations like computer programmers and management consultants showed improvement, but many key sectors lost momentum. Manufacturers, which had finally been adding jobs this spring, shed 11,000 jobs last month. Growth in construction employment, previously one of the economy's bright sports, flattened to nothing.
Brian Wesbury, chief economist of Griffin, Kubik, Stephens and Thompson Inc. in Chicago, joined a chorus of economists who said the slowdown could easily be an anomaly given that June is prone to seasonal distortions. Many noted that even with the sluggish results in June, the economy has generated 1.5 million jobs since last August, a strong showing after several years of doldrums.
But Meyer and others warned that the weak report doesn't come in isolation. Only a week ago, the Commerce Department cut its estimate for growth in first-quarter gross domestic product to 3.9 percent from 4.4 percent. Durable goods orders have slipped for two months running and June saw a troubling decline in sales at companies as diverse as Wal-Mart Stores Inc. and Ford Motor Co.
"If this came out of the blue, I'd say it was part of the normal ebb and flow of the data," Meyer said. "The problem is, it comes after a rather large slowdown in first-half growth."
For that reason, the job report is likely to intensify the debate about what's really happening with the economy.
As recently as Wednesday, when the Federal Reserve raised interest rates for the first time in four years, most experts were focused on the specter of inflation. With prices on the rise and labor markets improving rapidly, the danger of the economy overheating seemed greater than the threat of its slowing down.
Fed officials, however, noted in a statement accompanying their modest quarter-point rate hike that the upside and downside risks of maintaining price stability and economic growth were roughly equal. And yesterday, many economists acknowledged that the weak job report supports a cautious approach to raising rates to combat inflation.
What the June job report highlights, however, is the uneven nature of the recovery — something the Bush administration will continue to wrestle with as the November election approaches.
Even accounting for the recent slowdown, the economy continues to move forward at a healthy 4 percent clip, several economists said.
But while company profits surge, wages continue to lag. The Bureau of Labor Statistics said Friday that average hourly earnings have grown only 2 percent over the past year — a pace that trailed the rate of inflation. And most of the 1.5 million jobs created since August have come in low-wage sectors like temporary work and retail.
Jared Bernstein, a senior economist with the Economic Policy Institute, said industries that have posted above-average job growth over the past year pay 16 percent less than industries that are growing more slowly.
"It indicates a continued division between the haves and have-nots," said Peter Morici, a professor at the University of Maryland business school.
Morici also pointed out that the continued weakness in the manufacturing sector promises to make life difficult for Bush in regions like the South and Midwest that heavily dependent on production jobs. Workers are angry and that could show up at the ballot box.
