- The Washington Times - Friday, June 2, 2006

The unemployment rate declined to 4.6 percent last month, the lowest in five years, when only 75,000 new jobs were created, a clear sign that the economy is growing more slowly after the robust expansion earlier this year.

The trend in jobs and wage growth, reported yesterday by the Labor Department, reflects how consumers are coping with rising costs of energy, health care and housing. Unemployment declined as more self-employed workers and independent contractors found work.

The deceleration in payroll jobs was led by continuing layoffs at retailers and auto manufacturers. Jobs requiring higher education and skills — including professional and business services, health care, education, and oil and gas drilling specialists — saw healthy growth, and the jobless rate for college-educated workers fell to 2.1 percent.

Construction jobs have stagnated this year with the end of the housing boom. Overall, the report showed that job growth during the spring was lower than previously reported and has been tailing off since February. Average hourly wages last month ticked up by 1 cent to $16.62 while the average workweek fell, leading to a decline in weekly wages.

“A meaningful economic slowdown is under way,” said Bernard Baumohl of the Economic Outlook Group, an economic advisory firm in Princeton, N.J., projecting that growth for the rest of the year will be half the first-quarter rate of 5.3 percent.

“The weak employment report represents one of the more concrete signs that we are about to enter a sustained economic slowdown in the second half, and with it will likely come lower inflation.”

The job slowdown, combined with high energy prices and a stagnant housing market, will force consumers to curb spending and enable the Federal Reserve to pause in its interest-rate raising campaign, possibly for the rest of the year, he said.

Market interest rates declined dramatically yesterday as investors concluded that the central bank will ease off for a while. But the stock market seesawed on the mixed prospect of lower interest rates accompanied by lower consumer spending and economic growth.

While yearly wage growth had ticked up to a five-year high of 3.8 percent in April, the Fed should focus on the failure of wages to keep up with rising prices, much less chase prices higher as wages did in past episodes of high inflation, said Roger M. Kubarych, economist at HVB Group.

“There is little or no evidence of a wage-price spiral at the moment and little chance that one might develop anytime soon,” he said, despite worries about wage inflation in some quarters on Wall Street.

Michael Alter, president of SurePayroll, which processes $3 billion in paychecks for small businesses each year, said job growth has been stagnant among small businesses all year, and recent strong growth in wages has cooled off. Small businesses compose the majority of employers in the United States.

“Business just isn’t good enough to warrant ramping up on new staff,” he said.

Mom-and-pop businesses are in a funk over “high oil and gas prices, war and uncertainty in the Middle East, rising health care costs, rising interest rates, a weakening housing market and dwindling consumer confidence,” he said. “It’s tough for small businesses to stay optimistic.”

John E. Silvia, chief economist at Wachovia Securities, said the weak job growth primarily reflected a cost-cutting trend among retailers, which have been consolidating and trimming payrolls. The rest of the job market remains remarkably stable, he said.

Yearly wage growth, at 3.7 percent, remains only a sliver below this year’s high-water mark, he said, reflecting the strong growth in salaries for people in skilled professions who are in short supply, including truck drivers, accountants, computer system designers, financial analysts and engineers.

“Our country remains short of college-educated workers,” he said.

Republicans pointed to the low unemployment rate as a sign that the economy remains healthy. But Democrats focused on the retrenchment in wage growth, which has been subpar since the 2001 recession.

“The American people have gone five years without a real increase in wages,” while the cost of living has been soaring, said Rep. Rahm Emanuel, Illinois Democrat and former Clinton White House aide. He dubbed it a “wageless recovery” for the majority of middle-class workers.

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