August 7, 2004
In Blow to Bush, Only 32,000 Jobs Created in July
ob growth ground nearly to a halt last month, the Labor Department reported yesterday, raising new concerns about the economy's strength and reshaping the political debate over its performance less than three months before election day.
Employers added just 32,000 jobs in July, a small fraction of what forecasters had expected and far below the robust gains in employment earlier this year. The government also announced that job growth in May and June was less than initially estimated.
"The economy is spinning its wheels again," said Richard Yamarone, chief economist at Argus Research in New York. "Corporate America is reluctant to hire anyone above the bare minimum."
The unemployment rate fell slightly last month, to 5.5 percent, but it is based on a smaller survey than the job growth numbers, which are widely considered the more reliable gauge of employment. [Page C1.]
The disappointing numbers are likely to rekindle fears that the relationship between economic growth and job creation has changed in important ways. With technology allowing companies to produce more goods without adding workers and some jobs moving to lower-wage countries, there are about a million fewer jobs today than there were in early 2001 even though the economy emerged from recession later that year and has been growing since then.
The weak increases of the last two months now mean that Mr. Bush is highly likely to stand for re-election with an employment level lower than it was on his Inauguration Day. That would be the first time that has happened since 1932, when the country was mired in the Depression and enduring far worse job losses than any it has experienced recently.
Despite the disappointing job figures, White House officials said that the economy was continuing to grow and that the policies they had put in place would do a better job of fostering further growth than Democratic proposals.
"We're not satisfied with today's payroll employment number,'' N. Gregory Mankiw, chairman of the president's Council of Economic Advisers, said. But he argued that the fall in the jobless rate and a recent decline in claims for unemployment insurance suggested that the job market could be healthier than yesterday's report made it seem.
"The underlying economy, if you look at all the data put together, still looks like it's going in the right direction," Mr. Mankiw said.
But Democrats countered that yesterday's report provided a compelling indictment of Mr. Bush's economic policies.
"It's premature for George Bush to raise the banner of 'Mission Accomplished' above the economy," Representative Rahm Emanuel, Democrat of Illinois, said. "If you're in the middle class, the economy has not turned the corner."
On Wall Street, stocks fell broadly after the release of the report, with the Standard & Poor's 500-stock index closing down more than 1 percent. The dollar dropped against the euro, and long-term interest rates declined as well. Despite the disappointing figures, most economists continue to expect the Federal Reserve to raise its benchmark short-term rate next week.
The fallout from the hiring slump has spread to many employed workers in recent months, as pay raises have failed to keep up with inflation. Over the last 12 months, weekly pay for rank-and-file workers, who make up about four-fifths of the work force, has risen only 2.3 percent, while prices have increased more than 3 percent. But the best sign in yesterdays otherwise grim report may have been the earnings gain in July, erasing an outright decline in June. Average weekly pay for rank-and-file workers rose $3.25, to $529.09, in July.
The economy's recent slowdown seems to stem largely from higher energy costs and the gradual disappearance of government stimulus as tax savings have been spent and the effect of lower interest rates has lost its punch. Recent increases in interest rates have caused mortgage refinancing to fall sharply, while higher oil prices have left businesses and households with less money to spend on other items.
"The escalation in energy prices is being driven not by supply and demand but by fear and uncertainty" about events in the Middle East, said Richard J. DeKaser, chief economist at the National City Corporation, a bank based in Cleveland. "My own view is that oil prices are set for a fall, but I would have said that three months ago."
The crimp in family budgets appeared to affect hiring last month, as retail employment fell for the first time since December, according to the Labor Department, which adjusts its statistics to smooth over normal seasonal changes. Banks, hotels, movie studios and phone companies all reduced their work forces, too. Government employment remained flat, as it essentially has for the last few months.
For the first time this year, more industries cut jobs last month than added them, the government reported.
Sectors that rely more on corporate investment than consumer spending helped make up for the losses. Manufacturers added 10,000 jobs, just the fifth positive month for the sector since the summer of 2000. Construction companies added jobs as well.
In other positive signs, the average length of unemployment fell, as did the number of people saying they were working part-time because they could not find a full-time job.
As part of its regular revisions, the Labor Department said that the economy added a total of 286,000 jobs in May and June, 61,000 fewer than reported earlier. Combined with the weak job growth for July, the revisions mean that the economy had 270,000 fewer jobs last month than forecasters had thought.
Before the report was released, the general expectation among Wall Street analysts was that the economy had added about 240,000 in July, far more than the 32,000 the Labor Department found.
The Fed next meets on Tuesday, and economists and investors predict that it will still raise its benchmark rate a quarter percentage point, to 1.5 percent. The Fed lowered the rate to an almost 50-year low last summer to help keep the economy from falling into a new downturn, and Alan Greenspan, the Fed chairman, has said he plans to lift the rate gradually over the coming year.
The weak recent job growth raises the chances that the moves will come more slowly and sporadically than previously thought, analysts said.
The contrast between last month's paltry job growth and the drop in the jobless rate raised new questions about the surveys that produce each number. The job-growth figures come from a poll of 400,000 places of employment with about 45 million workers. Private and government economists, including Mr. Greenspan, consider it the more accurate survey.
In a separate report yesterday, the Labor Department described the survey as "a highly reliable gauge."
But it is not perfect, economists add, and the household survey - which produces the unemployment rate after asking questions of 60,000 households - suggests that the labor market might be somewhat stronger than the business survey indicates.
The Labor Department will release two more employment reports before the November election.