Jobless Rate Steady; Market Tight

The nation's unemployment rate held steady at 4 percent in July, close to a three-decade low, despite the loss of 108,000 payroll jobs during the month, the biggest setback in nine years.

All of the jobs decline, however, came from 290,000 temporary government workers laid off in July because their work on the census was finished.

Private payrolls actually rose by 138,000 during the month, a sign that the nation's labor market remained extremely tight. The strength was spread across a number of sectors with manufacturing, financial services and retail trade all posting strong gains.

The nation's jobless rate dipped to a 30-year low of 3.9 percent in April, rose to 4.1 percent in May and then edged down to hold at 4 percent in June and July as the seemingly unstoppable U.S. economy has kept the jobless rate at levels most working Americans have never seen before.

The tight labor markets and the difficulty employers are having in filling jobs was seen in a further rise in average hourly earnings, which climbed by 0.4 percent in July to $13.76 an hour, an acceleration from gains of 0.3 percent in June and 0.1 percent in May.

While more people working and rising wages are good for American families, the Federal Reserve is concerned that the robust economy will trigger inflationary wage increases that could spark a wage-price inflation spiral that would spell an end to the current expansion, now in a record 10th year.

For that reason, the Fed has raised interest rates six times over the past 14 months in an effort to slow growth to a more sustainable pace and keep wage and overall inflation pressures in check.

The Fed next meets on Aug. 22 and economists are divided over whether it will feel the need to increase rates for a seventh time.

While many economists believed that the economy had shifted to a significantly slower rate of growth in the April-June quarter, that view was proven inaccurate last week when the government showed that overall economic growth, instead of slowing, accelerated to a robust 5.2 percent rate in the second quarter.

For July, the drop in payroll jobs of 108,000 was the first decline since a fall of 69,000 in January 1996, a decline blamed on severe winter weather. And it was the biggest drop since a fall of 185,000 in April 1991, a period when the country was struggling to pull out of the 1990-91 recession.

However, the employment picture has been complicated this year by the swing in government hiring for the census, and economists are concentrating on the changes in private sector employment as a better indication of underlying strength.

The rise in private sector jobs of 138,000 indicated that the economy has continued to power ahead, despite the rise in Fed interest rates, starting a year ago.

Jobs in manufacturing rose by 46,000 last month after exhibiting little growth during the first six months of this year. Construction employment edged up by 6,000, down a bit from a monthly averge gain of 17,000 so far this year.

In services, where most Americans work, retail trade showed a gain of 49,000 workers with restaurants and bars posting strong job gains that helped offset continued declines at department stores.

The July jobs numbers come amid a slew of other economic numbers, all of which are eyed nervously as the Federal Reserve's Open Market Committee Meeting of August 22 draws near.

Four reports came Thursday:

• The Commerce Department said factory orders jumped 5.5 percent in June, the biggest advance since July 1991, led by a record 42.2 percent increase in orders for aircraft and other transportation products.
• The nationwide average for 30-year mortgages edged down slightly to 8.12 percent, according to a survey by Freddie Mac, the mortgage company.
• Retail sales figures indicate that nseasonably cool weather and higher interest rates kept many shoppers out of the stores in July, resulting in a fifth consecutive month of soft sales for many of the nation's biggest retailers.
• In its weekly jobless report, the Labor Department said that the number of Americans filing new claims for unemployment benefits edged up a slight 2,000 last week to 276,000, a level that still indicates extremely tight labor markets.

Last week, the Commerce Department reported that the economy grew at a 5.2 percent clip during the second quarter of 2000, well above analysts' expectations.

On the eve of Friday's report, the Nasdaq Thursday jumped 101.42 points to 3,759.88, and the Dow Jones industrial average edged up 19.05 to 10,706.58.