By Paul Blustein
Washington Post Staff Writer
Saturday, September 2, 2006
Employers added jobs at a moderate pace in August, enough to lower the unemployment rate a notch without deepening worries about inflation. That was welcome news for the White House, the Federal Reserve and Wall Street, with fears that the economy may be headed into a period of stagnation coupled with escalating prices.
In the latest monthly report on the job market, released yesterday, the Labor Department said payrolls rose last month by 128,000 workers, while the jobless rate fell one-tenth of a percentage point, to 4.7 percent. The expansion in the number of employees suggested that the economy, while slowing from the torrid pace of earlier this year, is showing little sign of falling into recession.
At the same time, the modest rate of job growth and other data helped ease concerns about wages and prices spiraling upward. Workers' average hourly earnings edged up by just 0.1 percent, to $16.79. "This does not bode well for income gains, but it does take a little heat off of inflation," said Joel L. Naroff, president of an economic advisory firm bearing his name.
The report, analysts said, should thus be particularly heartening for the Federal Reserve, which is hoping to engineer a "soft landing" in which economic growth falls just enough to keep inflationary pressures in check.
Many forecasters are skeptical that the central bank can achieve such an ideal outcome, but the data released yesterday indicated that for now, at least, the economy is performing almost exactly as Fed Chairman Ben S. Bernanke would like. The stock market reacted enthusiastically, with the Dow Jones industrial average rising 83 points, or 0.73 percent, to 11,464.15, and the broader Standard & Poor's 500-stock index rising 0.55 percent, to 1311.01.
"It's good to be Ben Bernanke," said Stuart Hoffman, chief economist at PNC Financial Services Group, noting that not only was the Fed chief being feted on "Ben Bernanke Day" in his home town of Dillon, S.C., but also that yesterday's report brought "the added bonus of Fed-friendly data on job and wage growth."
The report may help ease the difficulty Fed policymakers face about whether to raise interest rates at their next meeting, Sept. 20.
After 17 consecutive increases of a quarter percentage point in the short-term rate that the Fed controls, it left the rate unchanged, at 5.25 percent, at its last meeting, on Aug. 8. Many Fed watchers have been betting that the central bank will again refrain from raising borrowing costs at the next meeting -- barring some unexpected news suggesting that inflation is getting out of control.
"The report reinforces the view that the Fed will stay on hold on Sept. 20," said Nigel Gault, U.S. economist for Global Insight Inc. But he cautioned: "Lingering inflation risks mean that we cannot yet declare that the Fed is done hiking rates for good."
The data evoked another round of conflicting claims between the Bush administration, which trumpeted the news, and its Democratic critics, who said the expansion has disproportionately benefited people in upper-income brackets.
"As we head into Labor Day weekend, today's unemployment report reminds us all that President Bush's economic policies are producing positive results for American workers," Commerce Secretary Carlos M. Gutierrez said in a statement.
Sen. Jack Reed (D-R.I.), ranking minority member of the Joint Economic Committee, retorted: "It is clear that too many Americans have not shared in the gains of this recovery."
The data provided fresh ammunition for both sides. The jobless rate for blacks dropped to 8.8 percent, the lowest in five years. Unemployment for Hispanics was unchanged at 5.3 percent.
But for those who lack employment, "indicators of how hard it is to find work showed no real signs of improvement in August and remain at high levels for this point in the business cycle," said Heather Boushey, senior economist at the liberal Center for Economic and Policy Research. She cited the number of weeks that people who are unemployed remain without jobs; the median figure in August increased from 8.2 weeks to 8.5 weeks. That means half of all individual unemployment episodes are longer than 8.5 weeks and half are shorter.
Payrolls in the retail sector continued to shrink, with stores shedding 14,000 jobs last month, bringing the cumulative loss for the sector to 101,000 over the past year. In manufacturing, too, the number of jobs fell in August, by 11,000. But those losses were offset by gains elsewhere, especially education and health services, where payrolls grew by 60,000. Construction, which had shown little growth for the past four months, added 17,000 jobs.
The increase in construction jobs came despite a marked weakening in the housing sector in recent months and a cutback in home building. In another report that seemed to contradict the jobs number, the Commerce Department said construction spending dropped 1.2 percent in July.