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Solid job growth adds fuel for more economic recovery

By Ken Moritsugu
Knight Ridder Newspapers

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WASHINGTON — A surging U.S. economy produced a third straight month of solid job growth in May, boosting confidence that the economic recovery is on sound footing and will last.

The United States added 248,000 nonfarm jobs last month, the Labor Department reported yesterday, on top of upwardly revised gains of 346,000 in April and 353,000 in March. The unemployment rate remained unchanged at 5.6 percent because the increase in jobs was offset by labor-force growth.

The latest report leaves the economy with 1.3 million fewer jobs in May than it had when the recession began in March 2001 — a gap that could be made up if employers added an average of 200,000 jobs a month for the rest of the year.

Some analysts said that is a good possibility given the strength of the economy, while others warned that the pace might taper off if high oil prices and terror fears cause businesses to pull back.

The three consecutive months of healthy job gains make it all but certain that the Federal Reserve will start a series of interest-rate increases at its next meeting on June 29-30.

Analysts expect the Fed to raise its short-term federal funds rate from 1 to 1.25 percent.

The report dispels "any lingering doubts they may have had that we're into a pretty strong expansion here, and it's time to begin raising rates," said Peter Hooper, the chief U.S. economist at Deutsche Bank in New York. "There's little doubt at all they will start at the June meeting."

Stocks rose on the news, as investors were encouraged that the job growth was solid but not so strong that it might push the Fed to raise interest rates more sharply than anticipated.

That view was reinforced by Federal Reserve Board member Donald Kohn, who said in a speech in Washington that he expects the rise in inflation to be "limited," which in turn would allow the Fed to increase rates gradually.

The Dow Jones industrial average rose 46.91 points to 10,242.82. The tech-heavy Nasdaq composite index climbed to 1,978.62, up 18.36.

Bush campaign officials expressed confidence that the steady job growth would change the dynamic in the presidential election and help President Bush rebound from his recent slide in popularity.

Minutes after the latest jobs numbers were released, Bush's media team put the finishing touches on a new television commercial boasting about the economic improvement. The ad is to air nationally on cable stations beginning next week.

"A wake-up call has been sent that the United States economy is back," said Commerce Secretary Donald Evans, one of several administration officials who touted the news in radio and television interviews.

Democrats responded to the report by noting that 8.2 million Americans remained unemployed last month, and more than one-fifth of them have been jobless more than six months.

"Any step forward in the job market is good news for workers, but America is still in the worst job recovery since the Great Depression," Allison Dobson, a spokeswoman for Democratic challenger John Kerry of Massachusetts, said in a prepared statement.

Kerry, who has harped on the job losses during Bush's tenure, is making a subtle shift to a broader economic message focusing on wages, the cost of health care, retirement issues and rising college tuition.

"There are still too many people who can't afford health care, can't afford to go to college," Kerry said yesterday at a veterans' rally in Minneapolis. "There're too many people struggling, while at the top end, people get ahead. I think it ought to be the reverse. We need to make it possible for every American to get ahead."

The unemployment rate for blacks ticked up to 9.9 percent in May from 9.7 percent the previous month. The rate for Hispanics edged down from 7.2 to 7 percent. The teenage unemployment rate climbed from 16.9 to 17.2 percent.

May's job gains came in a wide swath of the economy. The construction industry added 37,000 jobs, and manufacturing employment grew by 32,000. Restaurants and bars were up 33,000 jobs and the perennially strong health-care sector was up 27,000. Retailers added 19,000 jobs, primarily in food, clothing, building material and garden-supply stores.

Earlier this year, analysts were worried that the economic recovery could falter in the second half of this year as the boost to consumer spending from income-tax cuts and low interest rates wore off. Now, they think that job growth will create a self-sustaining recovery by increasing incomes, allowing consumers to continue to spend.

Average hourly earnings edged up 5 cents to $15.64, according to yesterday's jobs report.

"It looks like the recovery has staying power, even as we lose some of the stimulus from fiscal and monetary policy," said Lynn Reaser, the chief economist at Banc of America Capital Management in St. Louis.

Information from The Washington Post is included in this story.

Copyright © 2004 The Seattle Times Company

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