- The Washington Times - Friday, May 4, 2007

Job growth dropped by 50 percent last month and unemployment rose to 4.5 percent, the Labor Department reported yesterday, as spreading weakness in housing and autos and $3 gasoline put a crimp in the economy.

Most economists expect the job slowdown to be only temporary, but they acknowledge it knocks one of the strongest legs out from under the economy at a time when many other sectors are faltering. The news sent the dollar to within a cent of a record low against the euro and dampened the stock market’s recent enthusiasm.

The slump in job growth to 88,000 — the smallest gain in more than two years — from 177,000 in March reflected layoffs in manufacturing, real estate, finance and construction, where 32,000 home-building jobs have been lost since September.

Retail hiring also fell by 26,000 and the department pared previously reported monthly gains in February and March by 26,000.

Manufacturing has lost jobs for the past 10 months despite robust growth in exports of airplanes and other U.S. products, but the weakness there was offset in April by continuing strong job growth in health care, education, government and a few other businesses.

The average number of hours worked dropped by 0.4 percent during the month and wage gains declined to 0.2 percent, leading to a rare fall in weekly take-home pay that likely will hurt consumer spending and portends further declines in hiring and output, economists said.

“The soft landing is now self-evident,” said John E. Silvia, chief economist with Wachovia Securities. “Output got off to a sluggish start in the second quarter” and “employment appears set to grow at a more sluggish pace in the next few months.”

“Slower job growth will likely cut into income gains,” he said, just as average gas prices yesterday officially crossed the $3 threshold, which has been psychologically important for consumers and led to slower spending in past years.

Mr. Silvia expects the economy to hold up despite weak growth in the first half of the year. He said the economy is in a transitional state where it is “digesting the unwinding of the housing boom” while “waiting for a resurgence in capital spending” that will boost growth.

David Wyss, chief economist at Standard & Poor’s, said unusual weather patterns and an early Easter distorted the March and April employment figures, making construction employment seem strong in March and weak in April. The retail hiring figures were similarly distorted, he said.

“The data show a slowing economy but no imminent danger of recession,” he said. “Manufacturing remains the weak spot,” defying recent reports of an uptick in orders at factories.

But while signs of inflation have improved somewhat recently, Mr. Wyss does not expect the Federal Reserve to change its stance on interest rates at a meeting scheduled for Wednesday.

Richard Berner, economist with Morgan Stanley estimates that surging gas prices and fast-rising food prices are cutting $100 billion out of consumer spending power in the first half of the year.

“With home prices decelerating, the strain on consumers is becoming visible,” he said. Mr. Berner expects gas prices to reach new records well above $3 a gallon this year should hurricanes, foreign wars or other events roil the market.

Rising fuel prices once again pose a challenge for “much maligned consumers” and the economy, he said. “But consumers seem to be adopting to higher fuel prices,” with growth in U.S. fuel consumption running at a robust 2 percent to 3 percent in the last year despite rising prices and decelerating economic growth.

The secret behind consumers’ strength is their solid growth in incomes in the last year, he said. “Even with moderating job gains, faster pay hikes make consumer retrenchment unlikely.”

Michael Alter, president of SurePayroll, a small-business payroll-processing firm, said salaries at small companies have been growing for 20 consecutive months, giving a “booster shot” to consumer spending and the economy.

“Few would dispute that consumer spending has been carrying the economy for quite a while,” he said, but “we disagree with those who predict that gasoline prices and a sagging housing market will limit consumer spending in the months to come. Based on the salary increases we saw in April and the increased number of jobs, we predict consumer spending will show monthly gains over the next few months.”

But Jared Bernstein, analyst with the Economic Policy Institute, said “consumers will be hard-pressed to continue boosting overall consumption” and economic growth. “Without considerably stronger job growth, the threat of a recession will begin to loom large.”

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