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U.S. job growth tepid in June, jobless rate drops

Posted on: Friday, 8 July 2005, 14:24 CDT

By Andrea Hopkins

WASHINGTON (Reuters) - U.S. employers added 146,000 jobs in June, below Wall Street's forecasts, but the unemployment rate fell to its lowest since September 2001 as few people joined the labor force, a government report showed on Friday.

June's tepid hiring fell short of analysts' expectations of 188,500 new jobs and did not keep pace with population growth. But the drop in the unemployment rate to 5.0 percent was a surprise, since it was forecast to hold at 5.1 percent.

"It's enough to keep the wolves at bay but not enough to get excited about," said Michael Jansen, currency strategist at National Australia Bank in New York.

Economists said the rise in hiring suggested an economy growing at a rate above 3 percent -- strong enough to reassure the Federal Reserve that a spring "soft patch" had evaporated, but not enough to spark inflation worries.

"It's very consistent with an economy that is growing at or just below trend. It does not change anything for the Fed -- they're going to raise rates again next month," said Steve Ricchiuto, chief U.S. economist at ABN AMRO in New York.

The central bank has raised short-term interest rates nine times since last June in a bid to head off inflation, and experts expect a tenth rate hike in August.

The Labor Department also revised up job growth in April and May to 292,000 and 104,000, respectively, boosting the two-month count by 44,000 payroll jobs.

Treasury Secretary John Snow hailed June's job growth as evidence the economy was "thriving."

"More than 3.7 million jobs have been created since May 2003, with more than one million of those in the past six months," Snow said in a statement.

WEAK SPOTS

But not everyone was as optimistic, because the unexpected decrease in the jobless rate was mostly due to a paltry 1,000 increase in the labor force -- suggesting many Americans have stopped looking for work.

"The decline is not a sign of vigorous labor market activity, in our view, since it came in tandem with a pullback in the labor force participation rate to 66.0 percent," economists at Merrill Lynch said.

Factory payrolls shrank for the fourth straight month as auto assembly and parts plants cut back on production. Bloated inventories have prompted many automakers to slow production lines until demand can catch up. Some 96,000 manufacturing jobs have been lost since August 2004.

While 18,000 workers were hired in the construction industry last month, most of June's employment growth came in the service sector. Professional and business services jobs rose by 56,000, education and health services were up 38,000 and leisure and hospitality payrolls grew by 19,000.

In a potentially troubling sign, the length of the average workweek was 33.7 hours, unchanged from May's downwardly revised total. The factory workweek was also unchanged at 40.4 hours, while overtime held at 4.4 hours.

Employers typically increase the length of the workweek before taking on new workers, so a lack of growth in that area can mean scant hiring ahead.

Average hourly earnings rose 3 cents to $16.06 and have risen 2.7 percent over the year.

A separate report by the Commerce Department showed inventories at U.S. wholesalers rose just 0.1 percent in May, below analysts' forecasts, while sales were flat.

Wall Street analysts had expected wholesale inventories to gain 0.5 percent.

(Additional reporting by Laura Macinnis)

Source: REUTERS

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