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Economy Added 113, 000 Jobs in July

Prof. Peter Morici - 8/4/2006

Today, the Labor Department reported the economy added 113,000 payroll jobs in June, and the unemployment rate rose to 4.8 percent from 46 percent in June. The consensus forecasts were 150,000 new jobs and unemployment at 4.6 percent.

The revised figure for June jobs growth was 124,000. June and July jobs numbers indicate the economy is adding too few jobs, and unemployment is likely to continue rising.

Sub par jobs growth indicates the economy is slowing, more than Wall Street analysts and Federal Reserve policymakers anticipated. A weaker housing market and higher gas prices have slowed consumer spending, and this is slowing business investment, construction and jobs creation significantly.

Wages were up 0.4 percent in July, after rising 0.4 percent. Rising wages provide a clear sign that oil inflation is spreading into the labor market, even as unemployment rises.

Stagflation has arrived. The misery index—unemployment plus the interest rate—is above 10 percent.

Yet, weak jobs growth indicates higher interest rates are slowing the economic expansion and that inflation will cool in the months ahead. The Federal Reserve should not raise interest rates when it meets August 8.

Unfortunately, the recent surge in consumer prices is pushing the Federal Reserve toward additional interest rate increases, but these risk killing the economic expansion altogether and a long bout with stagflation or a even a recession.