Economy treading water as unemployment rate falls to 7.4%

Kevin G. Hall

Coming on the heels of positive indicators about economic growth, employers added a disappointing 162,000 jobs in July and the unemployment rate dipped to 7.4 percent, the government reported Friday.

Mainstream economic forecasters had projected a number closer to 200,000, in part because of good economic growth numbers earlier in the week, so the report from the Labor Department dashed hopes of another strong month of hiring.

Adding to the glum mood, statisticians revised downwards the strong numbers from May and June, suggesting hiring was not as strong as thought going into the slow summer months.

“Can’t help but be let down,” said Scott Anderson, chief economist for San Francisco-based Bank of the West. “Nonfarm job gains were mediocre at best in July and combined with the … downward revisions for May and June the job creation performance remained less than inspiring.”

Part of what troubled analysts in Friday’s report was the slowing in sectors that had seen hiring increase sharply. Professional and business services and the leisure and hospitality sectors continued to grow, but at a slower pace, adding 36,000 and 23,000 jobs respectively. And surprisingly, hiring in the usually robust healthcare sector slowed to a trickle at 2,500 new jobs.

Manufacturing added a modest 6,000 jobs and construction hiring, which had moved up along with an improving housing market, actually fell by 6,000. The government also reported a 1.5 percent increase in factory orders in June, led by big-ticket items called durable goods, which rose at 3.9 percent.

The best jobs showing in July was in the retail sector, which added almost 47,000 new positions.

“While unemployment remains stubbornly high, with millions of Americans jobless or underemployed, retailers are adding to their ranks and payrolls,” Matthew Shay, president of the National Retail Federation, said in a statement.

Even the two-tenths of a percentage point drop in the jobless rate wasn’t completely good news.

“The decline in the unemployment rate was due in part to weaker labor force growth. The economy has yet to achieve takeoff,” said Mark Zandi, chief economist for forecaster Moody’s Analytics. “But the job market isn't as soft as last month's data suggest. Looking at the data over the past several months shows that the job market slowly, but steadily is improving.”

The ho-hum jobs report followed a private-sector measure of hiring, the ADP National Employment Report, which showed on Wednesday 200,000 more hires in July over June. Also on Wednesday, the Commerce Department released growth figures for April through June, which showed the economy grew at a better-than-expected annual rate of 1.7 percent.

But the Labor Department’s revisions of May and June numbers, and Friday’s weak July report, paint a picture of an economy treading water.

“We’ve now averaged 192,000 new jobs per month for the year so far, about the same as last year,” said Keith Hall, who until recently headed the Bureau of Labor Statistics which conducts the monthly report. Hall now teaches at George Mason University’s Mercatus Center.

The Obama administration looked past the weak numbers, saying the economy added jobs for the 41st straight month, and called on Congress to avoid confidence-killing drama in coming negotiations to pass a new budget and raise the ceiling for government borrowing.

“With the recovery entering its fifth year, we need to build on the progress we have made so far and now is not the time for Washington to impose self-inflicted wounds. The across-the-board budget cuts known as the sequester continue to be a drag on the economy now and in the future,” Alan Krueger, head of the White House Council of Economic Advisers, said in a statement on his last day in office.

Republicans wasted little time seizing on the weak jobs report.

“It is tough to find the bright spot in this report when the fact remains that the economy is still so weak that over half of the kids coming out of college today are either unemployed or underemployed,” Rep. Dave Camp, R-Mich., chairman of the tax-writing House Ways and Means Committee, said in a statement shortly after the report’s release.

Kevin G. Hall
McClatchy Washington Bureau