Roaring job growth slows

WASHINGTON — Job growth slowed last month, suggesting that the U.S. economy may be cooling after roaring ahead at the start of the year.

Stock and bond prices soared as investors interpreted the weaker job growth to mean that the broader economy may be slowing to a more sustainable pace than that of recent months. That would make the Federal Reserve less likely to raise short-term interest rates next month and beyond.

But there were other signs that the nation's job market remains tight. Wages for nonsupervisory workers rose at their sharpest pace in five years, and the unemployment rate remained unchanged at 4.7 percent, below what many economists consider full employment.

The Labor Department's report Friday offered plenty of grist for those who hold either of two views of the economy. In one, growth is coming in for a soft landing that will lead to steady expansion for the remainder of the year without rapidly rising prices. In the other, labor markets remain tight and wages are rising, which is good news for workers but potentially bad news for those worried about inflation.

"It's a mosaic of economic statistics that matter," said Joel Prakken, chairman of Macroeconomic Advisers. "The data [Friday] is consistent with the forecast that the economy will slow through midyear. But there's also some firming of wages."

Employers created 138,000 jobs last month, compared with an average of 185,000 a month from January to March. Analysts had expected around 200,000 new jobs, and it takes about 150,000 new jobs a month just to keep up with U.S. population growth.

As the year began, economists widely expected the U.S. economy to slow in 2006 to its long-term-trend growth rate of around 3 percent a year. Instead, it began the year with a 4.8 percent annualized rise in gross domestic product in the first quarter.

As long as growth continues rapidly, economists expect the Federal Reserve to continue raising its benchmark federal funds rate, seeking to slow growth enough to prevent inflation. It is widely assumed that the Federal Open Market Committee will raise that rate by a quarter-percentage point next week, but whether it will do the same at its June meeting, analysts say, depends on what economic data between now and then say about whether the long-expected slowdown has finally arrived.

Friday's job report gave many economists, along with stock and bond markets, confidence that it has. The Dow Jones industrial average rose 138.88 points and bond yields fell.

"We're finally seeing some moderation in growth," said Stuart Hoffman, chief economist of PNC Financial Services Group. "I think the Fed will take no action in June."

Not everyone is so sure that Friday's job report means the economy is slowing enough to keep inflation under control, and the Fed happy.

For one thing, most other indicators available so far of how the economy did last month look strong; a wide range of surveys and other indicators give little hint of a slump.

The unemployment rate and the number of jobs created are based on different surveys, one of households and the other of employers. In the long run, they tend to give a consistent picture of how the labor market is changing, but in the short run can give divergent readings, as was the case last month.

"We've seen consistent strong job growth for a number of months, and we really saw no abatement of that in April," said Gary Butler, president of the nation's largest payroll processor, Automatic Data Processing, which on Wednesday released an indicator of labor-market health based on the payrolls of 225,000 U.S. businesses that are its clients. That indicator suggested job growth rose last month, contrary to the government numbers.

Moreover, skeptics say that job growth isn't the best measure of whether there is inflationary pressure in the economy, which is the Fed's foremost concern. The strong wage growth and continued low unemployment numbers are more significant to them.

"We've got wage inflation the highest it's been in five years," said Richard Yamarone, director of economic research at Argus Research. "That's the yellow caution flag the Fed is going to be concerned with."

Yamarone and other economists will look particularly closely at data released in the next few weeks, and at the revision to April employment numbers that will be released early next month, to try to figure out whether the labor market and broader economy really are slowing.

In another report released Friday, the Federal Reserve said debt owed by U.S. consumers rose $2.5 billion in March, well below economists' expectations. Debt on credit cards and other revolving credit fell $140 million, which could suggest that interest-rate increases in recent months are making Americans less inclined to borrow money, especially on high-interest credit cards.