- The Washington Times - Friday, July 2, 2004

NEW YORK (AP) — Fresh questions about the strength of the economic recovery sent stocks lower yesterday as a disappointing report on job creation weighed heavily on investor confidence. All three major indexes lost ground for the week.

The Labor Department said the economy created 112,000 jobs in June, less than half the number economists expected. After three months of strong job growth, the latest report was a letdown to many investors, though those worried about inflation may have found some consolation in the data, as fewer jobs means weaker demand for goods and less pricing pressure.

“It’s not like the economy’s going into the tank here, but in comparison the spring was just unusually strong,” said Scott Brown, chief economist for Raymond James. “And now we’ll probably see a lot of volatility this summer as we try to figure out the true strength of the economy and what the Federal Reserve will do with interest rates.”

Volume was very light in advance of the Independence Day holiday, with few investors making bold moves in advance of the three-day weekend. The markets were scheduled to be closed on Monday.

The Dow Jones Industrial Average fell 51.33, or 0.5 percent, to 10,282.83.

Broader stock indicators were also modestly lower. The Standard & Poor’s 500 Index was down 3.56, or 0.3 percent, at 1,125.38, and the Nasdaq Composite Index lost 8.89, or 0.4 percent, to 2,006.66.

For the week, the Dow lost 0.9 percent, the S&P; 500 fell 0.8 percent and the Nasdaq lost 0.9 percent. It was the third down week for the S&P; 500 and the second for the Dow, while the Nasdaq reversed last week’s gains.

With Wall Street expecting 250,000 new jobs for June, the latest jobs data could lead some investors to question whether the economy is slowing down after solid growth in the first half of the year. May’s figure of 248,000 new jobs was revised downward to 235,000 as well.

The nation’s unemployment rate remained steady at 5.6 percent, the Labor Department said, though the number of new jobs in the manufacturing sector, a key barometer of economic growth, dropped by 11,000. Average hourly wages climbed by a less-than-expected 0.1 percent.

The Labor Department report came just two days after the Fed raised interest rates by a quarter percentage point— the first increase in four years — in hopes of slowing down the speeding economy. Should job-creation data continue to slide in July and August, the Fed’s move could be seen as premature in hindsight.

And the summer rally investors were hoping for after the Fed move isn’t likely to materialize, analysts said, as investors pore over each new economic indicator to see whether the economy’s growth will continue to slacken.

“The markets are still pretty expensive, but the justification for that price is this great earnings growth,” said Russ Koesterich, U.S. equity strategist at State Street Corp. “But if the economic growth is slowing down, earnings will slow down, and then can you justify these prices? That’s the question. It’s going to be a long, slow summer, I’m afraid.”

On the positive side, the Commerce Department reported factory orders fell by just 0.3 percent in May, less than the 0.5 percent decline economists anticipated.

In industry news, worldwide sales of semiconductors rose to $17.32 billion in May, up 36.9 percent from a year ago, according to the Semiconductor Industry Association. The news did not help chip stocks, however. Intel Corp. was down 69 cents at $26.33, while Advanced Micro Devices Inc. lost 23 cents to $15.27.

Apple Computer Inc. tumbled $1.22 to $31.08 after the company said the debut of its new iMac personal computer would be delayed until September, forcing the company to miss the lucrative back-to-school sales season.

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