- The Washington Times - Friday, August 5, 2005

Job growth picked up broadly to 207,000 last month and wage gains were the best in a year, signs that wage earners may finally be reaping greater benefits from a tightening job market.

The news of accelerated job creation in July was accompanied by updated figures from the Labor Department yesterday showing that another 42,000 jobs were added in May and June, bringing the monthly average of new jobs to 191,000 for the year.

The gains last month were in every area except manufacturing, where temporary layoffs by Detroit manufacturers were bigger than usual at this time of year and resulted in a loss of 4,000 jobs. The unemployment rate held steady at 5 percent.

“The U.S. economy continues to fire on all cylinders,” said Charmaine Buskas, analyst with Economy.com.

The report prompted a rise in the dollar, but spurred selling of stocks and bonds as traders worried the rises in employment and earnings will heat up the economy and eventually lead to more inflation.

Also adding to inflation fears was a new high in oil prices, with the price of premium crude jumping 93 cents to $62.31 in New York trading.

With labor costs constituting two-thirds of the costs that businesses pass on to customers through price increases, the report stoked the conviction in financial markets that the Federal Reserve will keep raising interest rates and will not pause in its campaign to nip inflation in the bud anytime soon.

Economists said the reported 0.4 percent rise in average hourly earnings, coupled with a 0.2 percent gain in hours worked, points to higher incomes and consumer spending in the weeks ahead.

“We would expect spending to flourish commensurate with job growth,” said Richard Yamarone, economist at Argus Research Corp.

Like other forecasters, Mr. Yamarone has upgraded his expectations for growth in the second half of this year to 3.9 percent, from 3.5 percent in the first half, in light of the surprising strength seen in the economy in recent weeks.

“The economy appears to be motoring along,” he said. The job gains last month were particularly “eye-popping” in the department’s survey of households, which showed an increase in employment more than twice as big as the 207,000 jobs reported by businesses, he said.

The household survey counts several types of jobs — including independent contractors, self-employed individuals and family workers — not included in the payroll report.

Since businesses are creating fewer payroll jobs than in the past and are employing more independent contractors, the household survey may offer a more realistic reflection of the economy today, Mr. Yamarone said.

Self-employment is up by 6.6 percent since the 2001 recession, which explains why household employment is up by 4.4 percent while industry payrolls are up only 2.3 percent in the same period, he said.

Payroll jobs in autos and other industries had their heyday during the 1950s, when unions thrived and counted one-third of the work force as members, Mr. Yamarone said.

Today, many manufacturing jobs have moved overseas, union members compose 12 percent of the work force, and millions more people work on their own.

“Fashion trends change” and so do economic trends, Mr. Yamarone said.

Michael Alter, president of SurePayroll, a small-business payroll service, said small firms have been switching from payroll employees to independent contractors in a big way in recent years, which has led to declines in wages and salary levels.

But this summer, salary growth at small firms has started to pick up, mirroring the trend in the larger economy, he said.

“It’s probably good news for everyone as it mitigates the risk of widespread salary deflation, which, like rampant inflation, can take a terrible toll on the economy,” he said.

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