News > Economy
U.S. job creation slows
July 7, 2000: 8:52 a.m. ET

A modest 11,000 jobs added in June; wages rise 5 cents; jobless rate at 4%
By Staff Writer M. Corey Goldman
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NEW YORK (CNNfn) - Job growth slowed to a crawl in the United States and wages rose modestly in June, a government report showed Friday -- more signs for investors that the Federal Reserve's recent spate of interest rate increases are starting to slow the world's largest economy.

graphicThe U.S. economy created 11,000 jobs last month, the Labor Department said, far fewer than the 260,000 forecast by Wall Street and the revised 171,000 positions created a month before. Average hourly earnings, a harbinger of inflation, rose 5 cents, or 0.4 percent, to $13.71, matching forecasts. The jobless rate edged down to 4 percent from 4.1 percent in May.

Both stocks and bonds surged in the wake of the report on expectations that the Fed may hold the line on rates at its next meeting Aug. 22. The central bank held short-term rates steady at its June meeting on evidence of slowing economic activity after raising them six times over the last year in a bid to ward off inflation pressures. The fed funds rate is 6.5 percent.

"The Fed will welcome this report as it suggests that slower economic growth will be extended into the third quarter," said Steven Wood, an economist with Banc of America Securities in San Francisco. "The probability of an August rate increase continues to diminish and is now below 50 percent."

More evidence of slowing

Indeed, the report was yet another sign that the U.S. economy, now in a record 10th year of uninterrupted expansion, is beginning to feel the effects of the Fed's inflation-fighting rate increases.

graphicRecent reports have shown slower manufacturing output, subdued consumer spending, lackluster retail sales and faltering consumer confidence, due mostly to the effects of higher borrowing costs.

What's more, while second-quarter corporate profits generally are expected to be strong, a growing number of companies have been warning Wall Street that their earnings won't meet expectations, partly because consumer and business demand is beginning to slow.

That more than likely will have an impact on both job creation and consumer spending, two factors that the Fed has been keeping a hawkish watch over. At the same time, analysts cautioned that with such dramatic swings in private-sector job creation -- way down in May, way up in June -- the jury still is out on whether the Fed will call it a day on its recent spate of rate hikes or continue with more in August.

Not out of the woods yet

"As appealing as these numbers are, they do little to clear the murkiness; the most we can now conclude is that six rate hikes are slowing the economy," said Oscar Gonzales, an economist with John Hancock Financial Services in Boston. "The Fed could pull the trigger on rates again in August just as easily as they could stand down."

graphicAs usual, the report guised itself as a double-edged sword -- good news for Wall Street, bad news for Main Street. While there is still ample evidence that companies are having a tough time finding and keeping workers, recent signs do point to slowing job creation, namely among companies that have struggled or outright failed since the March market correction.

A recent study by Chicago-based Challenger Gray & Christmas Inc., which helps displaced employees find new jobs, showed 5,398 job cuts since December. That pace picked up dramatically in May and continued its heady climb into June, with a grand total of 40 companies handing out pink slips to some 2,635 people, according to CEO John Challenger.

Companies hire, governments fire

Labor Department Secretary Alexis Herman told reporters on a conference call that while the Fed's series of rate increases are beginning to have an impact on job creation, most sectors of the economy still are hiring at a healthy clip. In fact, private-sector job creation has averaged gains of more than 100,000 positions a month, according to Labor figures.

graphic"Overall I think it's fair to say we're seeing some impact of interest rate adjustments affecting the overall economy," Herman said. "It's clear we have certain skill shortages in certain sectors of the economy, but overall we have a majority of sectors that continue to hire. We have a skills shortage, not a labor shortage."

So who exactly is hiring? Communications companies, airlines, brokerages, insurance firms, health services companies and retailers, among others. Which retailers? Mostly restaurants and smaller clothing and specialty shops, according to the numbers. And who isn't hiring? The government, for one, along with hotels, department stores and building materials firms.

Overall, private-sector employment, which fell a revised 165,000 in May, rebounded with 206,000 new positions in June, the department said. Some 13,000 jobs were created in goods-producing industries, 3,000 in construction and about 8,000 were added on factory floors.

More data to ponder

Government jobs, meanwhile, fell 195,000 as temporary employees hired for the 2000 Census completed their work. Last month, the government hired 347,000 Census workers, accounting for all of the month's gains.

graphicThe pool of available workers -- the number of unemployed job seekers combined with those not looking for work in the last 12 months who said they would take a job -- fell to 9.8 million in June from 10.2 million in May, the Labor Department said. The percentage of those holding jobs rose to 64.5 percent in June from 64.3 percent in May.

Mike McDermott, a bond trader with Salomon Smith Barney, told CNNfn's Before Hours that Fed policy makers will have several more economic reports to ponder, including June's inflation numbers, July's manufacturing report and July's jobless numbers, among many others, before deciding if the U.S. economy is responding to their medicine and beginning to slow. (507KB WAV) (507KB AIFF)

The Labor Department's monthly employment figures are based on statistics provided by businesses, while the unemployment rate is based on a general survey of U.S. households. The next employment report detailing July's job creation will be released Friday, Aug. 4. Back to top


Job growth takes a break - June 2, 2000

Joblessness at 30-year low - May 5, 2000


U.S. Department of Labor

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