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Unemployment rate near 4-year low
Rate dips to 5.0 percent, lowest since 9/11, but job growth again falls short of forecasts.
July 8, 2005: 11:25 AM EDT
By Chris Isidore, CNN/Money senior writer
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NEW YORK (CNN/Money) - The nation's unemployment rate in June fell to the lowest level in nearly four years even as job growth came in weaker than most economists' forecasts.

The unemployment rate fell to 5 percent from 5.1 percent in May, the Labor Department reported, the lowest since a matching reading in September 2001, the month of the terrorist attacks on New York and Washington. Economists had forecast the rate would remain unchanged at 5.1 percent.

But the department's survey of employers showed they added just 146,000 jobs to payrolls in June, up from a revised 104,000 in May. That was well short of the average forecast for a net gain of 195,000 jobs last month, according to economists surveyed by

"The improvement in the unemployment rate has been very steady, which looks very believable," said Mark Vitner, senior economist with Wachovia Securities. "It points to a probable undercount in (payroll) employment."

June marked the ninth time in the last 12 months that employer payrolls came in weaker than forecasts. The 146,000 jobs added last month is barely enough to keep up with growth in the labor force, according to most economists, and it trailed the average increase of about 172,000 jobs a month added over the last 12 months.

John Challenger, CEO of outplacement firm Challenger Gray & Christmas, said employers are clearly still more cautious about adding employees than in past expansions.

"With the economy growing at a steady pace and healthy corporate earnings, the lack of much stronger job growth is a mystery," he said in a statement.

Challenger said part of the problem is employers' doubts about the strength of the current economic expansion. He said there is "concern that a sudden jolt to the economy could bring down this house of cards," adding, "The terrorist attack in London yesterday serves as a reminder that we are still vulnerable."

The average hourly wage edged up 3 cents to $16.06. That was in line with forecasts and brought hourly wages up 2.7 percent over the last 12 months, while consumer prices are up 2.8 percent for the 12 months through May, meaning wages for hourly workers are barely keeping pace with inflation.

On Wall Street, stocks edged higher in morning trading while Treasury bonds were little changed.

The facts that job growth once again trails expectations and wages remained in check were seen as more confirmation that the Federal Reserve can maintain its current "measured" pace of interest rate hikes.

"The pace of average hourly earnings continues to rise at just a tepid pace leading me to believe that this overall report is a very monetary policy-friendly report," said Anthony Chan, senior economist with JPMorgan Asset Management.

"So although, this report still suggests that another rate hike in August is baked into the cake, we see nothing here that would cause the Fed to relinquish its 'measured pace' approach," he said.

Chan noted that the May and April payroll numbers were both increased by a combined 44,000 in revisions issued Friday. He said coupling those upward revisions to the 146,000 job gain puts the payroll number close to average forecasts for June.

And a recent survey of manufacturing executives suggests the 24,000-job drop in manufacturing employment seen in June isn't likely to be repeated.

"I believe that it is safe to say that this report understates the true strength of current labor market conditions," Chan added.

For more on the strength of the job market and what it means to you and markets, click here.  Top of page


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