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Special Reports > Your Job 2004
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A hiring shock
July payroll growth far shy of Wall Street forecasts; unemployment rate down to 5.5%.
August 6, 2004: 2:20 PM EDT

NEW YORK (CNN/Money) - Hiring by U.S. employers slowed significantly in July, according to a government report Friday, as the number of new jobs added to payrolls came in far below Wall Street expectations.

The Labor Department report showed only 32,000 new net jobs added to payrolls during the month, down from a revised 78,000 jobs that were added in June. The increase was the smallest since December, when payrolls rose by just 8,000.

The unemployment rate fell to 5.5 percent, an improvement from the 5.6 percent reading in June.

Economists surveyed by Briefing.com forecast a 243,000 gain in jobs, and the unemployment rate staying unchanged at 5.6 percent. Economists surveyed by Reuters had a median jobs growth forecast of 228,000, with a range of estimates between 200,000 and 300,000.

This is the second straight month of jobs growth far below economists' forecasts, following three months that showed strong jobs growth starting in March. The June report had initially showed 112,000 jobs added, rather the 250,000 forecast at that time.

But Friday's report missed the target by even a wider margin.

"The significant number of headwinds such as rising energy prices and the prospects of rising short-term rates are taking their toll on the economy," said Anthony Chan, senior economist with JP Morgan Fleming Asset Management.

U.S. stocks opened sharply lower on new concerns about the state of the economic recovery.

Meanwhile bond prices soared and yields, which move in the opposite direction, fell amid expectations that the Federal Reserve will not raise interest rates as fast as previously expected. The Fed holds its next meeting to consider interest rates Tuesday.

Fed hike on hold?

Several economists said Friday that the report should prompt the Fed to reconsider the widely expected quarter-point increase in interest rates at Tuesday's meeting.

"They would like to raise rates, but right now, keeping rates a little too low would cause the least harm in the economy," said Mark Vitner, senior economist at Wachovia Securities. "If they raise rates after this weak employment report, people will be hollering. George Bush would be hollering the loudest."

Others say they think that even with the number, the Fed might move ahead with the quarter-point hike Tuesday.

"When you have a long road to travel, you don't take too many breaks. You just keep on going," said Chan. "We're one or two bad numbers away from reassessment of Fed policy, but we're not there yet. Yes, this number is weak, and yes, it's disappointing, but there are some rays of hope in here."

The report did show some signs of strength in secondary numbers in the report. Average hourly wages were up 5 cents to $15.70, in line with forecasts, and the average hourly work week rose 0.1 to 33.7 hours, which was just below the forecast of 33.8.

How accurate is report?

More importantly, the survey of households, used to compute the unemployment rate, showed 629,000 more people at work than in June. The other payroll number is based on a survey of employers. One economist said he believes this suggests problems with the employer survey.

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Labor Secretary Elaine Chao discusses the disappointing July jobs report, which came in nearly 200,000 jobs short of analysts' forecasts, explaining why the numbers aren't as grim as they seem.

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"I don't have any faith that 32,000 jobs added reflects what's going on," said Vitner, who had forecast a 280,000 gain in the payroll number. "The growing disconnect between the surveys is too much to dismiss."

Labor Secretary Elaine Chao also emphasized the strength shown in the household survey when she appeared on CNNfn Friday.

"I think there has been a debate which survey should be focused on more," she said. "Both surveys are trending positive and show jobs growth."

Chao and Treasury Secretary John Snow trumpeted the addition of 10,000 jobs in manufacturing shown in the employer survey.

"With the addition of 91,000 jobs since February, the manufacturing sector has had its best six-month period in six years," said a statement from Snow.

But Democrats were quick to attack the report as a sign of failure for the administration's economic program. Democratic presidential candidate John Kerry said that it was proof that a new administration with a new economic plan was needed.

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"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," he said in a statement released by his campaign. "Saying we've turned the corner doesn't make it so."

Economic advisers for Democratic presidential candidate John Kerry pointed out that the administration itself had emphasized the employer survey back in March when that showed strong job growth while the household survey showed a decline in employment. They said that even with the jobs growth now being reported, the administration will see a net decline in employment during its tenure.

"This year may be President Bush's best year; it would have been President Clinton's worst year," Kerry economic adviser Aida Alvarez told CNNfn.

The report shows that retailers had 19,000 fewer employees than a month earlier, while leisure and hospitality employers had 2,000 fewer employees. Vitner said those numbers seem at odds with new store openings and improved hotel rates.

It also showed 23,000 fewer jobs in the finance services sector than in June. Chao said much of the decline could be attributed to the expected rise in interest rates. Rising mortgage rates have cooled refinancing activity.

Information services also showed a decline of 5,000 jobs, following a revised 2,000 job decline in June.

The employer survey showed other sectors with slim growth. Besides the gain in manufacturing jobs, construction was up 4,000 and business and professional services added 42,000 jobs.

Vitner said his discussions with clients does suggest that while they aren't seeing a worsening economic condition, they are no longer seeing the growth they were reporting earlier this year.  Top of page




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.