Fewest New Jobs in Two Years; big losses of construction and factory jobs

Yahoo! News
Unemployment rate drops to 4.5 percent
By JEANNINE AVERSA, AP Economics Writer

The nation's unemployment rate dipped to 4.5 percent in February even as big losses of construction and factory jobs restrained overall payroll growth. Wages grew briskly.

The latest snapshot, released by the Labor Department on Friday, offered a picture of an employment climate that remains in fundamentally good shape despite slower job growth in part due to bad winter weather in parts of the country, economists said.

The slight decline in the politically prominent jobless rate, from 4.6 percent in January, came as hundreds of thousand of people left the work force, a development that economists also believe was related to the bad weather in February that made it difficult to get out and look for jobs.

Employers, meanwhile, added 97,000 new jobs to their payrolls in February, the fewest in two years, as bad winter weather forced construction companies to slash 62,000 jobs, the most since 1991. Factories, feeling the strain of the troubled housing and auto industries, also continued to cut jobs. They eliminated 14,000 positions last month.

On a more encouraging note, job gains in the previous two months turned out to be stronger than previously estimated. Employers added 226,000 new jobs in December, versus the 206,000 last estimated. Payrolls grew by 146,000 in January, up from a previous estimate of 111,000.

The new tally of jobs added to the economy in February was close to economists' forecast for a gain of around 100,000. They had predicted the unemployment rate would hold steady at 4.6 percent.

"While we may not be creating as many jobs as we would like to see, the labor market is still in good shape," said Joel Naroff, president of Naroff Economics Advisors. "The job market is still tight enough to drive up workers' wages."

Wall Street investors also liked the latest employment news and gave stocks a lift. The Dow Jones industrials were up 12 points in morning trading.

Workers' wages grew quickly last month.

Average hourly earnings rose to $17.16, a 0.4 percent increase from January. That was slightly faster than the 0.3 percent gain economists were expecting. Over the 12 months ending in February, wages grew by 4.1 percent.

Strong wage growth is welcome by workers and supports consumer spending, a key ingredient to the country's economic health. But a rapid pickup — if sustained and not blunted by other economic forces — can raise fears about inflation. Spiraling inflation would whittle away any wage gains, hurting workers' wallets, and isn't good for the overall economy, either.

The Federal Reserve, which had steadily boosted interest rates for two years to fend off inflation, has left rates alone since August. The Fed — which said it will keep a close eye on inflation — meets later this month to consider interest rate policy. Economists said Friday's employment report didn't change their view that the Fed will probably continue to hold interest rates steady.

In other economic news, the Commerce Department reported that the trade deficit narrowed to $59.1 billion in January as U.S. exports climbed to an all-time high.

The latest batch of economic reports come as President Bush continues to get lukewarm ratings for his economic stewardship. Just 41 percent of the public approves of the president's handling of the economy, compared with 57 percent who disapprove, according to an AP-Ipsos poll.

Democrats, who accuse Bush of not doing enough to close the gap on economic inequality, say a top priority is getting final agreement in Congress on legislation to boost the federal minimum wage from $5.15 an hour to $7.25 an hour. The wage hasn't budged for nearly 10 years. Democrats also are pushing legislation making it easier for workers to start unions against company wishes.

Although construction companies and factories eliminated jobs last month, other employers, including health care providers, financial firms and retailers boosted hiring. February's jobless rate was the lowest since December, when the unemployment rate also stood at 4.5 percent.

Analysts expect the unemployment rate, which dropped to a six-year low of 4.6 percent last year, will creep up this year as economic growth slows. Some believe the jobless rate could climb to close to 5 percent by the end of this year. The economy expanded by 3.3 percent last year, the best showing in two years. Growth, however, is expected to ebb to around 2.7 percent for all of 2007.