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By Michael E. Kanell
Atlanta Journal-Constitution Staff Writer
Saturday, July 8th, 2006
The American job machine continues to click along in a low gear, expanding payrolls by a disappointing 121,000 positions during June but maintaining a low jobless rate, the Bureau of Labor Statistics reported Friday.
A consensus of economists had expected the report to be nearly twice as strong.
More troubling was the trend, as hiring has seemed to parallel a slowing economy: Monthly job growth averaged an anemic 108,000 during the second quarter of this year, down from 176,000 during the first three months of 2006.
The official jobless rate, produced by a smaller survey, offered a much brighter picture of job growth than the payroll data. The rate lingered for the second consecutive month at a relatively low 4.6 percent.
Most economists predict temporary slowing of growth. Very few say we're headed for recession, a significant downturn over more than several months.
But the economy is carrying several unpredictable burdens — higher interest rates and rising energy costs, uncertainties that hurt hiring.
"It's the same factors that are slowing down the overall economy," said Jared Bernstein, senior economist at the Economic Policy Institute.
After a five-year boom, the housing market peaked last year. Sales have since been trending gradually downward, removing a vital cog in the job machine.
Residential construction, which has supplied more than one-quarter of new jobs in the expansion, lost jobs in June for the second consecutive month — the first back-to-back declines since early 2001.
Workers with limited education and skills have a special challenge, especially if they are in auto or textile industries that had paid historically higher wages but are now shedding jobs, said economist Peter Morici of the University of Maryland.
The private sector expanded last month by a meager 90,000 jobs, yet the picture does include pockets of strength.
More than half the sectors reported payroll gains, according to the BLS: Jobs were added in leisure and hospitality, education, health care and local government. Manufacturing, which has hemorrhaged
3 million jobs in six years, added 15,000 — jobs that generally pay above-average wages.
There are even shortages in some fields — especially technical and software development, temporary staffing agencies have reported.
Average hourly earnings jumped 0.5 percent and are now up 3.9 percent during the past year, the largest such gain since mid-2001, according to BLS.
Those modestly fatter paychecks may not yet be keeping up with inflation, which has increased at a 4.2 percent pace, according to an earlier BLS report. But higher wages will give ammunition to inflation hawks, who fear a repeat of the 1970s wage-price spiral.
Stagflation — the word coined during that decade to describe a time of high inflation and stagnant growth — has re-entered the vocabulary.
The economy now has both better growth and lower inflation than it did in the disco era, but there are still similarities, Bernstein said. "Stagflation is too strong a word. But I wouldn't be surprised if we are looking at a period of sagging job markets and prices remaining relatively high."
Aiming to head off inflation, the Federal Reserve's rate-setting committee has lifted short-term interest rates 17 times in two years. A pickup in wages makes it more likely that the campaign will continue.
"Given its anti-inflation tilt, the Fed is likely to target the faster wage growth rather than the slower job growth," Bernstein said.
But if it does, the Fed must walk a narrow line between inflation and growth, said Emily Sanders, president and chief executive off Sanders Financial Management in Norcross.
The idea is to slow the economy — but not too much, she said. "The fact that job numbers were weaker is a sign that the Fed is starting to have an impact in slowing things down. I do feel the Fed could overshoot if they are not careful."
Barring that, job growth should continue at the present pace through year's end, she said.
Slower hiring reflects lower demand for goods and services, as well as rising costs. But for companies that have solid sales, higher costs may not crimp hiring.
Dinner A'Fare, a Cumming-based chain that offers do-it-yourself meals to go, has grown in two years to six franchises and a company-run store — each averaging five or six employees, said co-owner Ken Wright.
The corporate unit has hired two people in the past month, he said: one for training and one for quality assurance.
Finding the workers needed to handle customer demand trumps worries about costs, Wright said. "We would rather pass along some costs and deliver the same high-quality service. In the long run, we'd raise prices to meet energy costs before we'd cut labor."
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