U.S. Economy Added Only 32,000 Jobs in July
BY Matt Quinn
The lone bright spot on the report was that the unemployment rate fell to 5.5 percent in July, down from 5.6 percent in June. The payroll survey and the unemployment rate show opposing trends occasionally because they are based on different surveys. Economists consider the payroll survey to be a more reliable indicator of the overall health of the labor markets.
Various polls showed that economists had expected new jobs to increase between 215,000 and 245,000 in July. The new report also revised June's numbers down to a gain of 78,000 jobs from an initial estimate of 112,000. May's payrolls were also revised down to 208,000 from 235,000.
Numerous studies over the years have shown that the majority of new jobs are created by small, growing businesses. The most recent report by the Labor Department didn't break down the new job creation by large versus small businesses.
The weak report is sure to be a major issue in the presidential election debate even though it still represented the 11th straight month that new jobs have been created. The economy has lost a net 1.1 million jobs since President Bush entered office despite an economic stimulus package that included numerous tax cuts.
One reason given by economists for the tepid hiring is that high energy prices are dragging down earnings. This week rude oil prices topped $44 a barrel for the first time ever.
In his July testimony before Congress, Federal Reserve Chairman Alan Greenspan said that the economy had hit a "soft patch" in June, but he expected that it would be short-lived. July's job numbers may put a damper on those expectations.
Federal Reserve policy-makers meet next week to set short-term interest rates. Economists still anticipate that the Fed will increase rates by a quarter point, but it may need to reevaluate how many increases it will make during the rest of the year if the labor markets don't rebound.
Even while economic growth has been strong the last two quarters, the job markets have been spotty. Gross domestic product grew at a 4.5 percent clip in the first quarter of 2004 and a relatively disappointing, but still solid, three percent rate in the second quarter. Payrolls have increased a total of 1.5 million since August 2003, but roughly three-fifth of the growth occurred in March, April and May.
MATT QUINN contributes to the Wall Street Journal's corporate finance blog. He has also written extensively about banking and corporate finance for publications including Inc., American Banker, and Financial Week. He lives in Brooklyn, New York.