Jobless Rate Falls to 6.2%, but Payrolls Slump
By KENNETH N. GILPIN
he government said today that the nation's unemployment rate fell in July. But the employment report offered scant evidence that conditions in the labor market are improving.
The jobless rate fell to 6.2 percent last month, down from 6.4 percent in June. But the decline occurred even as payroll employment outside the farming sector fell by 44,000 jobs. Moreover, the Labor Department said that job losses in May and June were much bigger than previously estimated. This is the sixth straight month that the nation's payrolls have declined.
The report was a disappointment to analysts, many of whom had forecast that the number of employed Americans rose slightly last month.
"Recovery has not come to working-class America," said Paul Kasriel, director of economic research at the Northern Trust Company in Chicago.
While the drop in the jobless rate is encouraging, the reason it moved lower is not. According to the Labor Department, the labor force shrank by 556,000 in July, to 146 million. In addition, the department estimated that 470,000 people were too discouraged by their prospects to look for work in July.
The number of people leaving the labor force was the highest since May 1995.
The numbers were not well received on Wall Street. Stocks slumped after the figures were reported. And bond prices, which have been skidding lower for the better part of six weeks, fell again this morning before recovering later in the day.
Seeking for bright spots, analysts noted that recent declines in weekly initial claims for unemployment benefits took place after the Labor Department conducted its monthly survey.
And employers added 42,000 temporary workers to their payrolls in July. This is the third consecutive increase in temporary employment.
"As is often the case, you start to see an improvement in temporary workers before you see payroll hiring pick up," said David Resler, chief economist at Nomura Securities International.
But those facts seem slim when measured against the totality of the report.
The manufacturing sector, which has been shedding jobs for three years, did so again last month. Manufacturing employment fell 71,000 in July, the 36th consecutive month of decline.
Mr. Kasriel said that on a seasonally adjusted basis, manufacturing employment is at its lowest ebb since October 1958.
Those who still had factory jobs worked shorter hours last month. Factory hours worked fell to 40.1 per week from 40.3 in June, according to the data.
Over all, hours worked fell to 33.6 hours a week, from 33.7 hours a month earlier.
Despite the weak employment report, President Bush said today that he and his top economic advisers believed "there's a positive feeling in America about our economy."
Commenting at a Cabinet meeting, Mr. Bush said he remained convinced that tax cuts and expansion of the child tax credit would stimulate the economy. "Both of those events will enhance demand for goods and services, which will make it more likely somebody will find work," Mr. Bush said.
The White House is also counting on the Federal Reserve's easy monetary policy to promote job creation.
So far, however, the desired results have not appeared.
"Given the massive amounts of stimulus that have been applied, there is obviously something wrong" with the economy, Mr. Kasriel said.
Analysts said the report reconfirmed their conviction that the Fed would maintain its current monetary policy stance for some time. A few said they did not expect the central bank to consider raising short-term interest rates until the unemployment rate falls close to 5 percent.
Despite the weak July employment data, some other reports indicate that the American economy may be improving. In a preliminary reading on second-quarter growth, the Commerce Department said on Thursday that the nation's gross domestic product, the total value of goods and services produced in the United States, grew at an annual rate of 2.4 percent.
Also today, the nation's purchasing managers reported that conditions in the manufacturing sector improved in July from June. The Institute of Supply Management said its manufacturing index rose to 51.8 in July from 49.8 in June. A reading above 50 percent means the economy is expanding.
Still, the growth figures, although stronger than most analysts had forecast, do not appear to be strong enough to generate hiring. Moreover, analysts are beginning to worry that rising interest rates may choke off a robust recovery.
Signs that the rise in bond yields may already be having an impact were visible in today's employment report.
The financial sector, which has been vigorously adding jobs to cope with the mortgage refinancing boom, added jobs last month, but at a much slower rate.
For the past two months, job gains in the financial sector averaged about 7,000 a month. From August of last year until May 2003, about 16,000 jobs were added each month in this sector.
And employment growth has also slowed over the last two months in the construction sector, again because of rising mortgage rates.
"Thirty-year home mortgage rates are up over 6 percent, and that will start to squeeze housing," said David Wyss, chief economist at the Standard & Poor's Corporation.
Rising interest rates "are starting to scare me," he added. "They are going up too fast, too soon."
"If rates stay at this level, they will have a negative impact on growth," Mr. Wyss said.
In July, two million people were out of work for 27 weeks or more, unchanged from June. Over all, nine million Americans are out of work.
Despite the decline in the unemployment rate, few analysts were willing to predict that the jobless rate has peaked.
"Labor markets are not improving," said Ray Stone, a managing director at Stone & McCarthy, an economic research and consulting firm in Princeton, N.J. "They are stabilizing."
Mr. Kasriel was more blunt. "Except for the rise in temporary workers, there was nothing good in this report," he said. |
