June Job Growth Less Than Expected
Signs Point to a Cooled Economy; Unemployment Rate Steady at 5.6%
By Nell Henderson
Washington Post Staff Writer
Friday, July 2, 2004; 5:44 PM
U.S. employers slowed the pace of hiring last month, the government reported today, adding to other signs that the economy has cooled slightly amid higher prices and interest rates.
The nation's payrolls grew by a modest 112,000 jobs in June, a smaller gain than the 235,000 added in May, the Labor Department reported. The economy has added jobs every month since August, but the size of the monthly increase peaked in March and has declined in each of the three months since.
The gains in April and May were also smaller, by a combined 35,000 jobs, than previously reported, according to the department's revision of earlier data.
The unemployment rate, meanwhile, held steady at 5.6 percent in June for the third consecutive month as the number of additional people seeking jobs roughly matched the number who found jobs.
These and other details in the report show that employers scaled back their hiring as the economy lost some momentum in recent months, analysts said.
"When businesses get a sense that the underlying growth rate is weakening, they're going to cut back on hiring," said Peter E. Kretzmer, senior economist with Bank of America Corp., who largely blamed the spring spike in energy prices for eating into consumers' and businesses spending power.
Stocks prices fell slightly today. But bond prices rose as financial analysts concluded that milder job growth will mean the Federal Reserve can stick to its plan of raising its benchmark short-term interest rate in small, gradual steps in the months ahead.
With voters ranking the economy among the top campaign issues this election year, the mixed employment picture provided ammunition for both Republicans and Democrats.
President Bush hailed the job gains and cited the recent surge in consumer confidence, the nation's record-high rate of homeownership and the latest growth in manufacturing activity as signs that his economic policies are succeeding.
"We're witnessing steady growth," Bush told a group of small business owners at the White House, according to a transcript. "We don't need boom or bust type growth, we want just steady, consistent growth, so that our fellow citizens will be able to find a job, and so that the small business sector will feel confident about expanding."
Democrats responded by noting the fall-off in job growth, and the fact that more than one in five unemployed workers has been jobless for more than six month, a portion that has barely changed since June of last year.
"This month's report does not paint a picture of a strong labor market," said Rep. Fortney "Pete" Stark (D-Calif.), senior Democrat on the Joint Economic Committee.
The economy expanded at around a 4 percent annual rate in the six months from October through March, in part because of recent federal tax cuts and very low interest rates. But as those effects have waned, and as higher prices have eaten some of consumers' and businesses spending power, the momentum appears to have ebbed.
The Commerce Department, for example, reported today that new orders to U.S. factories dropped 0.3 percent in May, for a second monthly decline. U.S. automakers' sales slid in June. Manufacturing activity rose last month, but at a slower pace. And personal income was flat in May, after adjusting for inflation and taxes.
The employment report caused several analysts to further trim their estimates of economic growth to around a 3.5 percent annual rate in the last three months.
Partisans could point to signs of both improvement and weakness in the June labor market.
On the bright side, employers have added 1.5 million jobs since August. But the nation's total number of nonfarm jobs remains 1.2 million below the peak reached in March 2001 when the recession began.
The industries that added jobs in June included health care and social services, professional and technical services, transportation and warehousing.
But manufacturing lost 11,000 jobs in June after four months of employment growth. Construction and government employment was flat. Retail jobs increased very slightly.
Particularly troubling to some analysts were the June declines in both the length of the average workweek and average weekly earnings. The workweek, at 33.6 hours, seasonally adjusted, was the shortest since the department began recording the data in 1964. The workweek has touched that low before, including several months last year.
Some analysts speculated that these declines might reflect the closure of many businesses and government offices for former president Ronald Reagan's state funeral. But others said they were consistent with the overall softening of the economy.
Despite the overall gains, there remained in June 1.5 million people -- little changed from a year ago -- who said they wanted a job but could not find one in the last 12 months. These people are not counted among the unemployed because they had not actively looked for work in the four weeks before the Labor Department's survey. In June, they included 478,000 "discouraged" workers -- the same number as a year ago -- who said they were not looking for work because they believed there are no jobs available for them.
After adding those who are working part-time because they can't find full-time jobs, the department's measure of the nation's "labor underutilization" was 9.6 percent in June, about the same level as the previous two months.
Several analysts said the employment report justifies the Fed's stated desire to raise its benchmark Federal funds rate very gradually in coming months.
"The economy is growing, but not in an inflationary way that will cause the Fed to be more aggressive," said Stuart Hoffman, chief economist at PNC Financial Services Group.
© 2004 The Washington Post Company