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The Honolulu Advertiser
Posted on: Saturday, July 9, 2005

Unemployment dips to 5 percent

By Nell Hnederson
Washington Post

Hiring around the country picked up slightly in June with employers adding 146,000 jobs — helping to push the unemployment rate to its lowest point since September 2001, the Labor Department said yesterday.

ric Feld | Associated Press

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WASHINGTON — Builders, healthcare providers, financial firms and other U.S. employers added workers to their payrolls last month, pushing the nation's unemployment rate to 5 percent, the lowest level in more than three years, the government reported yesterday.

Employers added 146,000 jobs in June, up from a gain of 104,000 in May, and about the number many economists believe necessary to keep up with the normal growth of the labor force, the Labor Department said.

The unemployment rate edged down to the lowest level since September 2001 as the number of people who found jobs exceeded those who joined the search. The size of the labor force — the number of people who have jobs or who are actively looking for work — was essentially unchanged.

Employers have added an average of 181,000 workers per month this year, about the same pace as last year. This fits with the view of many economists, including those at the Federal Reserve, that the economy and labor market have settled into a fairly steady expansion that should continue for some time.

Stocks rose after the figures were released as investors expected rising employment to fuel solid economic growth. And many analysts said the jobs report strengthened their expectations that the Fed will raise short-term interest rates again in August to keep inflation under control.

"This is a solid report," said Jared Bernstein, senior economist with the Economic Policy Institute, a think tank that focuses on labor issues. "We are at a stage in the recovery when we can count on employers to continue creating employment opportunities. ... Most sectors are adding jobs on a monthly basis, and this is an important signal of widespread labor demand."

However, Bernstein and others also noted the evidence of improvement was mixed with several signs of continuing weakness.

The nation's service sector kept swelling, as retailers, hospitals, hotels, educators, architectural firms, temporary help providers and government were among the employers that added jobs.

But manufacturing employment kept shrinking. Manufacturers shed 24,000 jobs, for a fourth consecutive monthly decline. Most of those — 18,000 — reflected production cuts by automakers trying to reduce their bloated inventories. But makers of furniture, apparel, paper, machinery and metals also cut payrolls. Manufacturing jobs have fallen in 10 of the last 12 months.

On Wall Street, investors buoyed by the jobs news said it suggested the economy is advancing at a modest pace that won't fan inflation. The Dow Jones industrials soared 146.85 points to close at 10,449.14.

The employment gains were unevenly distributed among the population. Black unemployment rose to 10.3 percent last month from 10.1 percent the month before — more than double the overall rate — as joblessness fell among whites to 4.3 percent from 4.4. percent. The unemployment rate for Latinos, who can be of any race, dropped to 5.8 percent in June from 6 percent in May.

And economists are divided over whether a 5 percent unemployment rate is very good, or not good enough. It is well below the recent high of 6.3 percent touched in June 2003, when the economy was still recovering from the 2001 recession; but it is well above the recent low of 3.8 percent reached in April 2000, near the end of the 1990s economic boom.

Many economists say the low unemployment rate of 2000 was the result of unusual circumstances; under normal conditions, the rate cannot fall much below 5 percent for long without pushing inflation higher.

But others contend the current 5 percent rate understates the degree of weakness remaining in the labor market after the recession and initially weak recovery. One sign, they say, is the share of civilian adults choosing to work or look for work — called the labor force participation rate. It grew fairly steadily for most of the last 40 years, pausing during recessions and then resuming its climb during recoveries, peaking at 67.3 percent in early 2000. However the rate has fallen since then and dipped last month 66 percent from 66.1 percent in May.

The participation rate suggests "that the measured unemployment, at 5 percent, is probably painting too rosy a picture of job market tautness," Bernstein said.