WASHINGTON -- USA-ECONOMY/JOBS (URGENT):US July job growth slowest since Feb
Employers created 92,000 jobs in July, far fewer than economists had predicted, as the unemployment rate ticked up to 4.6% from 4.5% in June, the Labor Department said Friday, a sign that economic growth is slowing.
While the job market is expanding, it's growing more slowly than last year. Average monthly job creation is 136,000 in 2007, compared with 189,000 in 2006. The July figure is down from the revised 126,000 jobs created in June.
A second report Friday said the U.S. service sector's expansion slowed in July, another indication that overall economic growth is moderating.
The Institute for Supply Management, an organization of corporate purchasing executives, said its index of business activity in the non-manufacturing sector registered 55.8 in July, down from 60.7 in June.
Readings above 50 indicate the sector is expanding, below 50 indicate contraction. Economists were expecting a reading of 59.
That report is a worrisome sign, since the Labor Department report said job growth in July was centered in the services sector, with health care accounting for more than a third of new jobs. The financial sector, restaurants and business services were also employment drivers.
The goods-producing sector of the economy, manufacturing and construction, didn't have a great month. Construction employment fell 12,000 in July and manufacturing employment dipped 2,000. Manufacturing shipments and demand have been rising in recent months, but factory employment has fallen 175,000 since the start of the year.
Construction employment is off 75,000 from its September peak. Construction layoffs are rising, but haven't been as high as expected, given the widespread slump in home construction — down about 20% the past year.
Part of the reason construction employment hasn't fallen more is because commercial real estate has been surging, though there are signs that sector may start to slow. The employment report, for example, showed a drop in both residential and commercial contstruction employment in July.
Average hourly wages for production and non-supervisory workers rose 0.3% to $17.45, seasonally adjusted, and are up 3.9% for the year. That's a slightly slower pace of growth than in June.
The employment figures are another sign the economy is growing slower than in the spring. Federal Reserve Chairman Ben Bernanke told Congress in mid-July that the central bank expects the economy to keep expanding, though below its potential, through the end of the year, with declining inflation .
"The trend pace of job creation has slowed in recent months," Steven Wood of Insight Economics said in an advisory to clients, noting that the Labor Department had also lowered its initial estimates of job growth in May and June.
Wood said the more moderate growth should please the Fed, because it would relieve some possible inflation pressures from a too-tight job market, but "is not so weak as to threaten the continuation of the economic expansion."
But Ian Shepherdson of High Frequency Economics, nodding to the slowing pace of job growth as noted in the household survey used to compile part of the employment report, worried that if current trends persist "unemployment will rise further and the Fed, eventually, will have to ease."
The Federal Reserve has held its target for a key short-term interest rate steady at 5.25% for more than a year, in an effort to tamp down inflation, which it calls the predominant threat to the economy. The Fed's policy-setting federal Open Mark Committee holds a one-day meeting Tuesday and is universally expected to keep its target for the key federal funds rate unchanged.
As growth has begun to slow, and financial markets have become increasingly concerned about that the implosion in the subprime mortgage market, some economists have suggested the continued economic expansion may be in more danger than the Fed expects.
The 4.6% unemployment rate is low by historical standards, but there were other signs of labor market weakness in the report. The number of people out of work six months or more rose 188,000 to 1.3 million in July, or 18.4% of total unemployment. That's up from 16.2% in June. Futher, the number of people out of work because of layoffs moved higher, rising 253,000 — and accounting for more than half those unemployed, up from 48.7% in June.
Financial markets have been counting on a strong job market to support consumer spending, which accounts for two-thirds of the economy, as gasoline prices rise and slumping home prices cut into household wealth. Bernanke told Congress that the housing correction has been deeper and longer than expected, a big reason the Fed shaved its projections for economic growth.
Wachovia economists told clients the employment report is consistent with slower income and consumption growth, and slightly below trend economic growth, through the end of the year.
July's new-job total was the smallest for any month since February, when 90,000 jobs were created. The consensus forecast of economists in a week-old Reuters poll was for 130,000 new jobs in July.
U.S. Treasury debt prices rallied after the payroll data was released, as investors judged that it pushed chances for any rate hike by the Federal Reserve further into the future.
The 4.6% unemployment rate in July was the highest since a matching 4.6% in January. The last time the rate was higher was in August last year, when it reached 4.7%, department officials said.