WASHINGTON — U.S. job growth nearly stalled last month, the government reported yesterday, reinforcing other signs that the economic recovery lost steam this summer and providing new fodder for the campaign debate over the effectiveness of President Bush's economic policies.
Employers added 32,000 workers to their payrolls in July, seasonally adjusted, the smallest monthly gain since December and the fourth-consecutive month in which the pace of job growth has slowed, the Labor Department reported. Analysts had projected the July numbers to be in the range of 215,000 to 240,000.
Hiring also was weaker in May and June than previously thought, according to department revisions of earlier figures.
The unemployment rate edged down to 5.5 percent in July from 5.6 percent the previous month, as more people did find work. The jobs report and unemployment rate sometimes move in opposite directions, usually temporarily, because they are based on different Labor Department surveys. The payroll report is based on data from businesses; the unemployment rate is derived from surveys of a smaller number of households.
"We're not satisfied," Treasury Secretary John Snow said in Pittsburgh. "We're encouraged, though, by the fact that the unemployment rate came down."
Stock prices plunged, with all three major stock indicators hitting lows for the year, as many investors saw the job figures as a sign the economy may continue to cool. The report also complicated the task of Federal Reserve officials who meet Tuesday to set interest-rate policy.
Speaking at a picnic in Stratham, N.H., yesterday, Bush remained positive, as he pushed policy prescriptions that have languished for months, if not years: Cutting business regulations, curbing lawsuits, and allowing small businesses to band together to purchase employee health insurance.
"Today's employment report shows our economy is continuing to move forward," Bush said. "And it reminds us that we're in a changing economy and we've got more to do. I'm not going to be satisfied until everybody who wants to work can find a job. I'm running because I understand how to take a strong economy and make it stronger."
But he hinted at proposals to come: "I'm running for four more years to continue to work for a pro-growth, pro-entrepreneur, pro-small business economic agenda that is good for America."
Democratic presidential candidate John Kerry said in a written statement: "The president keeps saying we've turned the corner. But unfortunately, yesterday's job numbers further demonstrate that our economy may be making a U-turn instead. ... We can make it better."
The job figures reflect employers' hesitance to add to payrolls in July after economic growth slowed sharply in the spring — to its weakest pace in more than a year — dragged down by higher oil prices, increasing interest rates and weak consumer spending, analysts said.
Many economists — including those at the Fed — until recently thought the spring softness would turn out to be a blip and growth would pick up in the second half of the year. But those forecasts assumed that oil prices would continue falling from the highs reached in May. Instead, oil prices have hit new highs in recent days.
"If oil stays here (around $44 a barrel) or goes higher, I have fears ... about the economy growing," said Stuart Hoffman, chief economist for PNC Financial Services Group. "If it comes down, I think we will be OK."
The department's revisions sliced 61,000 jobs off the earlier totals for May and June. That means the economy added an average of 106,000 jobs a month since May — far fewer than the 150,000 monthly pace analysts say is needed to keep up with population growth.
Yesterday's jobs report took administration and Bush campaign officials by surprise. Bush's close aides had been expecting a number that several called "decent." Bush officials had been reveling in Kerry's failure to make notable gains in polls after last week's Democratic National Convention. The jobs number abruptly ended the celebration.
The architects of Bush's tax cuts conceded that their economic impact has not had the staying power they had hoped. N. Gregory Mankiw, chairman of the White House Council of Economic Advisers, said record oil prices, terrorism fears and a lingering lack of business confidence have conspired to foil the administration's job forecast.
"I don't think [the tax cut] has run out of steam; I just think we've run into a lot of head wind," said Pamela Olson, who was assistant Treasury secretary for tax policy when last year's tax cut was formulated. "All those things are weighing down on [the recovery] moving forward in as robust a fashion as we had hoped."
The unemployment rate dropped to 5.5 percent from 6.2 percent a year ago, while employers have added jobs for 11 consecutive months, for a gain of 1.5 million jobs since August 2003. The total, however, remains 1.2 million below the peak in March 2001, at the beginning of the recession.
The weak employment statistics were reported as Federal Reserve officials prepare for their Tuesday meeting on interest-rate policy. Many analysts, as well as most traders in futures contracts tied to the rate, expect the Fed to lift its benchmark overnight interest rate to 1.5 from 1.25 percent as part of a plan to increase it gradually to prevent inflation pressures from building.
Fed Chairman Alan Greenspan said last month that the economy had hit a "soft patch" that likely would pass as expansion continued. He emphasized that Fed officials see more danger in leaving the rate extraordinarily low, where it likely would spur inflation over time, than they do in the possibility that raising it might dampen growth.
That was nearly three weeks ago, however, before the release of the July jobs report and others showing that consumer spending plunged in June at the steepest rate since September 2001, and that inflation has stabilized in recent months.
At the same time, they have worked hard to warn financial markets of any shifts in their policy. Absent any such public warnings, analysts said yesterday that they doubted the Fed would surprise the markets Tuesday by leaving the target unchanged.
Any administration policy proposal now would have virtually no impact on job creation before Election Day, said R. Glenn Hubbard, Bush's first Council of Economic Advisers chairman. Politically, though, Bush needs a strong policy response, said Kevin Hassett, a GOP economist at the American Enterprise Institute with close ties to the administration. "Having a positive policy agenda in the fall may be key to President Bush's re-election hopes," he said.
Washington Post reporters Jonathan Weisman and Mike Allen contributed to this report; details on the way the payroll report and unemployment rate are calculated were provided by Knight Ridder Newspapers.
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