Job Report Boosts Hope for Success of Fed Policy

America’s job market last month delivered powerful testimony that the economy is dodging inflationary pressures but also growing at a substantially slower pace.

The Labor Department reported Friday that unemployment in June dipped to 4%, down from 4.1% the month before but up from the 30-year low of 3.9% in April. Private-sector employers expanded their payrolls moderately, providing jobs for 206,000 more workers and bringing average wage increases to 3.6% for the last 12 months.

All told, Friday’s employment news underscored growing indications that the Federal Reserve Board is succeeding in guiding the economy into a “soft landing” designed to keep inflation tame without triggering a recession. The May employment report, showing the private sector losing 165,000 jobs, had raised some concerns that the nation’s record nine-year expansion might be threatened. Now, however, that month looks more like an aberration to analysts.

June’s numbers also showed lower-than-expected employment gains, but, even so, they generally were considered a good omen for both Wall Street and Main Street. The moderate growth in jobs and wages raised hopes that the Fed--which has boosted interest-rates six times since June 1999 to preempt inflation--now will call it quits rather than risk triggering a recession.

The stock market rallied on the news. The Nasdaq composite index gained 62.63, or 1.6%, to 4,023.20, and the Dow Jones industrial average rose 154.51, or 1.5%, to 10,635.98.

Lawrence Mishel, an economist at the liberal Economic Policy Institute think tank, said Friday’s employment figures “suggest steady growth, not a scintilla of evidence of wage acceleration . . . and perhaps some of the initial slowing of growth you’d expect from higher interest rates.”

Despite the slowing economy, he added, the job report shows “a continuation of a world with persistent low unemployment.”

Many analysts pointed to the modest average earnings growth in the private sector of 5 cents, or 0.4%, to $13.71 an hour as a harbinger of continued low inflation. Weekly earnings were up $3.10, or 0.7%, to $473, partly because of increases in the workweek and in overtime hours. That brought the rise in both average hourly and weekly earnings since June 1999 to 3.6%.

Those wage gains mean that paychecks are growing faster than consumer prices, which climbed 3.1% over the last year. At the same time, many analysts said, the pay increases wouldn’t trigger inflation because productivity is improving fast enough in the economy to cover the higher labor cost.

Overall, the job market squeezed out a gain of only 11,000 jobs because much of the private-sector increase was offset by losses in federal positions--mainly 190,000 temporary employees on the Census 2000 program who completed their work stints.

Private-sector growth has averaged 177,000 jobs a month during the first half of this year, a respectable showing but down from 202,000 jobs a month in 1999. The unemployment rate remains within the 3.9%-to-4.1% range it has maintained over the last nine months.

The slowing job growth of recent months shows that “businesses are adjusting quickly and efficiently” to the cooling economy, said Mickey D. Levy, chief economist at Bank of America in New York. He said that, taken together, the employment reports of May and June reflect a sharp slowdown but no cause for alarm.

Unemployment among blacks and Latinos, which jumped in May from historic lows in previous months, edged back down in June. The Latino jobless rate was 5.6% in June, versus 5.8% in May and 5.4% in April. Among African Americans, the unemployment rate was 7.9% in June, versus 8% in May and 7.2% in April.

Millions of teenagers poured into the job market in June, but many quickly found work. The seasonally adjusted teen unemployment rate for June was 11.6%, down from 12.5% in May. An analysis by the Employment Policy Foundation, an employer-backed group, found that the percentage of teens with jobs last month was the highest for any June in 12 years.

All the same, for workers and employers alike, there were some troubling signs. The number of discouraged workers--people who say they aren’t looking for work because they are discouraged about their chances of finding a job--was 308,000 in June. The total, although low by historic standards, was up 88,000 from a year earlier.

Dean Baker, an economist at the Center for Economic and Policy Research, a liberal think tank, pointed out that as recently as a few months ago many employers were reported to be hiring ex-convicts, the disabled and others they once avoided recruiting. Employers, he said, “were bending over backward to find workers anywhere they could, but the rise in the number of discouraged workers suggests that that’s less true now.”

In addition, some analysts saw signs that the slow employment growth was caused in part by a lack of available workers in the nation’s tight labor market. That in turn might become an increasing barrier to business expansion and could help kindle inflation.

Diane Swonk, president of the National Assn. for Business Economics and chief economist for Chicago-based Bank One Corp., said Friday’s report raises the likelihood that the Fed will resist boosting interest rates when its policymakers next meet in August. Last week, the Fed also stood pat on interest rates after lifting short-term rates by half a percentage point in May.

Still, Swonk said Friday’s report was “not enough reason for the Fed to call the war on inflation over.” She added that, “even though employment growth slowed, labor market conditions further tightened the pool of available workers.”

Speaking for the Clinton administration, Labor Secretary Alexis M. Herman offered an opposing view. She noted that there still are 13 million Americans who are potential workers. They include people looking for jobs and currently considered unemployed, along with others working part time because they can’t find full-time work or those who are out of the labor force because they lack transportation or child care.

“It’s not as though we don’t have people available,” Herman said. “We’ve got to pursue ways to lower the barriers to their participation” in the job market.

Herman also acknowledged a “skills shortage” in the labor force that has left many people without the know-how to fill available jobs.

On balance, however, Herman said Friday’s employment report “reinforces our view that the economy continues to perform at a steady and stable pace.”

She pointed out that the percentage of workers holding two or more jobs at a time, 5.4%, is at the lowest level since the government started tracking the statistic in 1994. A year ago, the percentage was 5.6%. The reason for the decline, Herman maintained, is that the economy is “providing good quality jobs to workers,” reducing the financial pressure to moonlight.

A key question raised by the evidence of a softening job market nationally concerns what lies ahead for the Los Angeles area, which was hit by a severe recession in the early 1990s and whose comeback never caught up with the national pace. The county’s unemployment rate for June won’t be reported for another week, but in May it stood at 5.6%, up from 5.5% in April.

The state’s overall economic performance also continues to be hindered by pockets of severe unemployment in Central California. In May, the state’s jobless rate was 5%, up from 4.8% in April.