Jobs, wages strengthen
Firms add 207,000 positions in July; unemployment holds
chicagotribune.com
By Robert Manor
Tribune staff reporter
Published August 6, 2005
The U.S. created more jobs than expected last month and workers earned better wages, both signs of an economy that is showing healthy growth.
The Labor Department said Friday that employers added 207,000 workers in July, well above the expected 180,000, and hourly earnings rose 0.4 percent, the biggest increase in a year.
Economists have noted for months that wages have failed to keep up with other rising indicators of economic health and said higher pay could strengthen consumer spending.
But improving employment and wages could keep the Federal Reserve in its interest rate raising mode to pre-empt inflation.
The Fed's policymaking committee meets Tuesday and is expected to raise its target interest rate by 0.25 percent, to 3.5 percent, for the 10th time since June 2004. Marc Pado, U.S. market strategist with Cantor Fitzgerald, expects the Fed to continue raising interest rates into the early part of 2006.
"The payroll numbers speak to the current strength of the economy," said Russell Lundeberg Jr., chief investment officer of Barrett Capital Management, who said the increase in wages was twice what most economists expected.
The unemployment rate remained at 5 percent, considered a comfortable number by historical standards.
"The unemployment rate is the lowest it has been since [the terrorist attacks in 2001] and lower than the average of the past three decades," says Jim Lanzalotto, vice president of strategy and marketing for Yoh. His company offers temporary skilled and professional workers.
"The demand and competition for most skilled technology professionals is growing stronger," Lanzalotto said.
Treasury bonds sold off during the day, as did sectors of the stock market that suffer when interest rates rise, such as home builders and utilities. Investors often shun bonds in times of rising interest rates in the hopes of buying later to obtain a higher yield.
Labor Department data showed that service industries grew the fastest last month, adding 203,000 jobs.
The largest single increase was in retail employment, up nearly 50,000. Health services and education also added jobs, but employment remained tepid in manufacturing, where companies cut 4,000 jobs.
Diane Swonk, chief economist with Mesirow Financial Inc. in Chicago, said the increase in wages, though welcome, is offset by higher gasoline costs.
"We are still catching up with the oil price inflation," Swonk said.
But she also noted that the government revised upward the number of jobs created in June and May, to 166,000 and 126,000, respectively.
"The revisions have shown us more solid growth," she said.
The biggest wage increases were in construction and health care, both booming sectors of the economy.
Financial observers said Friday's statistics portray an economy growing in strength, but not with dangerous speed.
"It is not growth that is going to burn itself out," Pado said. "It is very slow and steady growth."
Some economists said the breadth of new hiring, which occurred in many sectors of the economy, is also a good sign.
"Most industries added jobs in July," said Jared Bernstein, an economist with the Economic Policy Institute. "The job market, as reflected in today's report, looks to be improving at a slightly faster pace than in recent months."
Tempering the good news was the fact that employers cut a total of 300,000 jobs over the past three months.
"Companies are cutting in areas like manufacturing, sending many of these operations overseas," said John Challenger, chief executive of Challenger, Gray & Christmas Inc., a firm that assists in outplacement.
"These same companies can be adding people in other areas of the business like research and development, sales and operations," he said.
Hurricane Dennis, which assaulted the Gulf Coast last month and interrupted oil production for a time, had no significant effect on employment, the Labor Department said. |
