Joblessness Rises Amid Uncertainty
Unemployment at Five-Month High

By Nell Henderson
Washington Post Staff Writer
Saturday, August 5, 2006

Unemployment jumped last month to 4.8 percent as home builders, retailers and other employers grew more uncertain about hiring in a slowing economy, the Labor Department reported yesterday.

Hiring was weakest last month in the industries most affected in recent months by rising interest rates and high energy prices, which have dampened home sales and crimped consumer spending.

"The various headwinds that have served to reduce overall economic growth are also being felt in the job market," said Jared Bernstein, senior economist at the Economic Policy Institute, which focuses on labor issues.

Stocks and bonds rallied initially after the employment report was released because it bolstered investors' expectation that Federal Reserve policymakers will not raise interest rates when they meet Tuesday, after more than two years of steady hikes.

Employers added 113,000 new workers in July, matching the average monthly increases of the previous three months. The pace of job growth has declined sharply from the average 176,000 workers added in the first three months of the year.

The jobless rate rose in July from 4.6 percent the month before, as the increase in workers looking for jobs exceeded the number who found them. The July figure was the highest since February, when the unemployment rate was also 4.8 percent.

Automakers and other manufacturers, real estate agencies, department stores, and temporary employment services were among the companies that cut jobs last month. Construction companies added 6,000 jobs last month, after adjusting for seasonal variation. But overall, the industry has shed 2,000 jobs over the past three months -- a sharp contrast to a net increase of 79,000 in the first three months of the year. Retail employment was flat overall in July after three months of losses.

Employers in these industries aren't sure whether the economy is going through a temporary soft spot or entering a longer downturn, analysts said.

"They do see a slowdown, but they don't know the size of the slowdown," said John Silvia, chief economist at Wachovia Corp.

In contrast, job growth was solid last month in health care, education, law, finance, computer systems design, architecture and other areas with growing demand for highly skilled professionals, Silvia noted.

"We're hiring all over the place," said Tatiana Stead, spokeswoman for Capital One Financial Corp., the McLean-based credit card company that is expanding into traditional banking. The company has recently opened branches in Oklahoma and Kansas and is hiring tellers, branch managers, personal bankers, marketing professionals and other workers in Louisiana, Texas and Virginia, she said.

The Inova Health System, which includes Inova Fairfax Hospital, is finding it "really hard to fill" numerous openings for registered nurses, pharmacists, respiratory therapists and other highly skilled health-care jobs, said Che Parker, director of public relations.

Many other employers across the country are having trouble filling job openings in information technology, finance and other high-skill professions, said Roy G. Krause, chief executive of Spherion Corp., a staffing company with 650 offices nationwide. "We have significantly more orders in every one of our offices than we have qualified candidates to fill," he said.

Krause said he's advising some clients to offer higher wages "to draw more people and better candidates into the workforce."

In part because of growing demand for skilled, highly paid professionals, workers' average hourly earnings rose by 7 cents, to $16.76, in July, 0.4 percent higher than in June and 3.8 percent more than a year earlier.

The wage gains and an unemployment rate that is still low by historical standards show the job market remains quite strong, analysts said.

But it's also getting a little tougher for some job seekers. By July, workers were spending an average 17.3 weeks looking for a job, up from 16.2 in June. The share of workers unemployed for longer than six months grew to 18.6 percent last month from 16.2 percent.

The unemployment rate for black workers rose to 9.5 percent in July from 9 percent in June. The rate for whites was unchanged at 4.1 percent last month, and the Latino rate stayed at 5.3 percent.

Earlier this week, the Labor Department released data showing the unemployment rate in the Washington area fell in June to 3.3 percent from 3.7 percent in June 2005, showing continued strength in the local economy.

Many analysts concluded yesterday that the soft national employment report would cement the case for the Fed to rest Tuesday and leave its short-term benchmark interest rate unchanged at 5.25 percent. After the jobs report was released, traders in futures markets calculated the chances of a pause to be above 80 percent, from about 60 percent the day before.

"The Fed is done," said Ian Shepherdson, chief U.S. economist for High Frequency Economics Ltd., who forecasts markedly slower growth in coming months.

But others argued that the Fed would lift the rate at least once more on Tuesday, to 5.5 percent, for an 18th consecutive increase, to combat rising inflation.

"We still think the Fed will put inflation concerns first and pull the rate trigger," wrote Paul Ashworth, senior economist at Capital Economics Ltd.

And even if the Fed pauses on Tuesday, it may raise interest rates later this year, said several analysts, including Wachovia's Silvia. The recent wage gains in particular "will keep the Fed and investors on inflation watch," he said.

Staff Writer Cecilia Kang contributed to this report.