News your connection to The Boston Globe

Fall in job growth clouds economy

Job growth in the nation fell sharply for the second consecutive month in July, igniting fears that the economic recovery is stalling and creating worries for President Bush's reelection campaign.

Employers boosted payrolls by 32,000 jobs in July, the smallest monthly gain of the year and a startling down-shift from the spring when the economy averaged about 300,000 new jobs a month. Moreover, the Labor Department said yesterday, June's disappointing employment growth was even worse than first thought: The nation added only 78,000 payroll jobs, 34,000 fewer than initially reported.

Low wages worrisome. A12.

The unemployment rate slipped to 5.5 percent from 5.6 percent in June.

"This is shockingly weak," said Robert B. MacIntosh, chief economist for Eaton Vance Corp. in Boston. "We've been talking about a soft patch in the economy that was isolated in June, but perhaps it wasn't."

The job market's poor performance in July is the latest -- and most dramatic -- evidence that the once-roaring recovery has sputtered as rising energy costs and interest rates dampen consumer spending. This week, for example, the nation's retailers said sales slowed markedly in July while the Commerce Department reported that consumer spending experienced the sharpest monthly drop in nearly three years.

Stocks plunged yesterday, with the Dow Jones industrial average posting its second triple-digit loss in as many days. It fell 147.70 to close at 9,815.33, its lowest level since November. The Nasdaq fell 44.74, or 2.5 percent, to 1776.89, its lowest close in nearly a year.

All this is hardly good news for Bush, who seems increasingly likely to become the first president since Herbert Hoover to end a term with a net job loss. So far, the nation has regained 1.5 million of the 2.7 million jobs lost in the recent downturn, meaning the economy has to generate an average of 240,000 jobs per month to break even by year end. Since April, the economy has averaged just over 100,000 net new jobs per month.

Campaigning yesterday in Missouri, Senator John F. Kerry, the Democratic presidential nominee, said the weak job growth is more proof that Bush's policies aren't working.

"The president keeps saying we've turned the corner. But unfortunately, today's job numbers further demonstrate that our economy may be taking a U-turn instead," Kerry said. "America will not turn the corner to better days until we have a new president who can see our problems and take action to fix them."

The Bush administration, however, stressed the positive, saying that July marked the 11th consecutive month of job growth and that nearly 1 million jobs has been added since February.

"Today's employment report shows the economy continues to move in the right direction," said Treasury Secretary John W. Snow. "The American economy is continuing on a path of growth and expansion, and the president's tax relief continues to give momentum to that upward path."

Still, economists said, the economy has slowed. As the impact of the Bush tax cuts and historically low interest rates fades, the transition from a stimulus-driven, consumer-led recovery to a sustainable expansion led by business is proving dicey. The reason: Spiking energy prices are slowing consumer spending too quickly.

Prices for crude oil surged to record highs above $44 barrel this week.

"Consumers are very much affected by rising oil prices," said Chitra Staley, chief investment officer at Mintz Levin Financial Advisors in Boston. "They have no discretionary cash. People are strapped."

Employment sectors that depend on consumers were among the hardest hit in July, economists noted. Retail shed 19,000 jobs last month, while the leisure and hospitality sector lost 2,000. Financial services shed 23,000 jobs, with much of the losses concentrated in the mortgage lending sector.

Mortgages and other long-term rates have risen in recent months in anticipation of the Federal Reserve tightening credit to slow the economy to head off nascent inflation.

Last month, the Fed boosted its key rate to 1.25 percent from its 46-year-low of 1 percent, the first increase in more than four years.

Most economists were expecting the Fed to approve another quarter-point increase next week. With job growth so anemic in July, some now believe the central bank will wait until the economy regains steam.

But others say the Fed will raise interest rates gradually. While the pace has slowed, the economy is still growing, and the Fed won't risk rapid inflation by leaving rates at recessionary levels, these economist say.

Some employment sectors, including high-paying ones, added jobs in July. Professional and business services gained 42,000 jobs in July; education and health services, 20,000; and manufacturing, 10,000.

Robert Gavin can be reached at Globe staff writer Patrick Healy contributed to this report.

Today (free)
Yesterday (free)
Past 30 days
Last 12 months
 Advanced search / Historic Archives