Job Growth Strengthens Economy

The U.S. economy strengthened in recent months, as a solid job market encouraged consumers to boost their spending despite the housing slump and high gasoline prices, a slew of new figures showed yesterday.

Employers picked up the pace of hiring and the unemployment rate held steady at a low 4.5 percent, the Labor Department reported. Factories also became busier in May, while inflation eased slightly in April, other reports showed.

Together, the news depicted an economy on the mend since the start of the year when economic growth nearly stalled, fanning worries of recession.

"We had a very weak performance in the first three months of the year, but now we're in the middle of the year and economic conditions are extremely bright," said Richard A. Yamarone, director of economic research at Argus Research. Economic growth now "is nothing spectacular but far from recession."

Many investors agreed, driving stock prices modestly higher yesterday. The gains partly reflected expectations that the Federal Reserve will hold interest rates steady at its meeting next month and possibly through the rest of the year.

Fed Board member Randall S. Kroszner said in a speech yesterday that the sharp slowdown in growth earlier this year was due to temporary factors and that he expects "economic growth will pick up as we move through the year."

Housing remains the economy's biggest weak spot. Home building plunged in the first three months of the year. That helped to slow the growth of overall economic output, or gross domestic product, to an anemic 0.6 percent annual rate.

The U.S. auto industry is another soft spot. Automakers shed about 80,000 workers from their payrolls over the past 12 months and cut production to trim bloated inventories.

But the economy outside these areas is largely humming along. The job losses last month in home building and manufacturing were more than offset by new hires in health care, education, professional services, travel and other rapidly expanding service industries. The government is also hiring.

The net result was a solid gain of 157,000 jobs last month, or nearly double the 80,000 added in April, the Labor report shows.

"Though job growth of this magnitude is moderate, if it persists, it is likely fast enough to provide consumers with the needed income growth to propel the economy forward in coming months," said Jared Bernstein, a senior economist with the Economic Policy Institute, a think tank focused on labor issues. But, he added, the question remains whether such employment gains will continue.

Some analysts questioned whether the Labor Department data might be overstating job growth in a number of ways. In particular, they are puzzled by the fact that the number of workers in home construction has declined less than 4 percent over the past year while the number of housing units under construction is down more than 15 percent.