The nation's jobless rate edged downward to 5.2 percent last month, the Labor Department said yesterday, but the report did little to dispel worries that the economy is growing at a dangerously slow pace.
Underscoring their worries is a marked decline in the pace at which the country's economy is generating new jobs.
Excluding workers hired temporarily to help with the census, payrolls have expanded by an average of only 65,000 workers in the past three months, less than a third of last year's figures for the same period, according to the Labor Department report.
"You go down through the individual sectors of the economy and there is a lot of weakness," said one administration economist. "It is beginning to look like that instead of having the economy grow 1.5 percent to 2 percent in the second half, it may be zero to half a percent."
There are fears that job growth could dwindle further, cutting personal income gains and causing consumers to spend less. In addition, if the size of the labor force should begin to rise more rapidly, the unemployment rate could go up sharply, too.
Only 40,000 new payroll jobs were added last month, in part because the Census Bureau began laying off some of the 378,000 workers it hired earlier in the year to help with the decennial census.
Factories shed another 31,000 workers, bringing the drop in manufacturing employment since the spring of 1989 to 335,000.
The number of construction jobs fell for the fourth month in a row and is now back to just less than 5.3 million, its level of a year ago.
Construction work has been hurt across the country by several factors, including relatively high home mortgage interest rates, high vacancy rates in commercial office buildings in several areas and a shortage of credit for developers.
The slow job growth worries administration officials and some private economists, even though so far it has not resulted in an increase in the unemployment rate because the size of the labor force has increased equally slowly in recent months.
About 6.45 million people were reported to be looking for work but unable to find it last month. Except for three months early last year, that was the lowest figure for any month since 1979, when the labor force was much smaller.
Treasury Secretary Nicholas F. Brady signaled his concern with the economy's prospects on Thursday by publicly urging the Federal Reserve to cut short-term interest rates.
Brady has repeatedly made a similar appeal at his regular private sessions with Fed Chairman Alan Greenspan, an administration official said.
"In the weekly meetings with Alan, there is strong communication," the official said. "The voices get intense."
While Brady has argued that the economy needs a boost to make sure it does not slip into a recession, the official said, "the Fed has its argument, too."
Greenspan believes inflation remains too high and shows little sign of coming down, citing the rapid increase in labor costs for businesses.
At a meeting of the Fed's top policymaking group, the Federal Open Market Committee, earlier this week, it apparently was decided to leave key short-term rates at their current level, which has not changed since last Christmas.
However, members of the committee reportedly adopted a policy directive that would make it easier to lower rates if new signs of economic weakness emerge before their next meeting late in August.
At the last FOMC meeting on May 15, the committee decided the economy likely would continue to grow moderately if rates were left alone, according to a policy record of the meeting released yesterday.
"The Fed is in a quandary now," said Allen Sinai, chief economist at the Boston Co., an investment management firm. "From the job creation side, it's a clear case for the Fed to ease. But with unemployment so low, it's a very tough call."
The signs of slow growth were sprinkled throughout yesterday's employment report, although there were one or two hints of better times ahead for manufacturing.
Recent weakness in retail sales was reflected in the failure of employment in that industry to increase at all last month.
"Monthly increases in the first half of this year have averaged only 15,000, half the average for 1989," said Janet L. Norwood, commissioner of labor statistics.
"General merchandise stores have been particularly hard hit, losing 50,000 jobs over the last 12 months."
Most of the job gains last month were in the services industry, particularly in health services, in which 40,000 jobs were added.
In manufacturing, some analysts saw hints that the employment declines could be nearing an end in the fact that the length of the average workweek remained at a high 41 hours.
"Employers appear to have been meeting the fluctuations in demand in recent months by adjusting work schedules" rather than adding workers, Norwood said.