August 3, 2012

Economy Added 163K Jobs in July, but Rate Rose to 8.3%

Number of jobs is more than double amount in June, somewhat easing concerns about growth

Unemployed workers at a job fair. (Photo: AP) Unemployed workers at a job fair. (Photo: AP)

WASHINGTON (AP) — U.S. employers added 163,000 jobs in July, a hopeful sign after three months of sluggish hiring. The Labor Department said Friday that the unemployment rate rose to 8.3% from 8.2% in June.

July's hiring was the best since February. Still, the economy has added an average of 151,000 jobs a month this year — enough to keep up with population growth but not enough to drive down the unemployment rate.

"After a string of disappointing economic reports ... we'll certainly take it," said James Marple, senior economist at TD Economics.

Stronger job creation could help President Barack Obama's re-election hopes in November. Still, the unemployment rate has been above 8% since his first month in office — the longest stretch on record. No president since World War II has faced re-election with unemployment over 8%.

The government uses two surveys to measure employment. A survey of businesses showed job gains. The unemployment rate comes from a survey of households and is calculated by dividing the number of unemployed people by the size of the labor force. In July, more people said they were unemployed, while the size of the labor force shrank even more.

Economists say the business survey is more reliable.

Investors appeared pleased with the report. Futures tracking the Standard & Poor's 500 index and the Dow Jones industrial average gained about 1%. The stock market is coming off four days of losses. Yields on government bonds also rose as investors moved money out of low-risk assets.

A better outlook on hiring could make the Federal Reserve reluctant to take more action to spur growth. The Fed, which ended a two-day policy meeting Wednesday, signaled in a statement a growing inclination to take further steps if hiring doesn't pick up.

But some economists say the job gains need to be greater.

Paul Ashworth, senior U.S. economist for Capital Economics, said July's job gains were a "vast improvement" over the past four months. Still, they were well below the average 252,000 jobs a month added from December through February.

"It also isn't strong enough to drive the unemployment rate lower, which is what the Fed really wants to see. So, on balance, we doubt this would be enough to persuade the Fed to hold fire in September," Ashworth said.

The job gains were broad-based. Manufacturing added 25,000 jobs, the most since March. Restaurants and bars added 29,000. Retailers hired 7,000 more workers. Education and health services gained 38,000. Governments cut 9,000 positions.

Average hourly wages also increased by 2 cents. Over the past year wages have increased 1.7%— matching the rate of inflation.

Despite July's gains, the economy remains weak more than three years after economists declared the recession had ended in June 2009. Growth slowed to an annual rate of 1.5%in the April-June quarter, down from 2%in the first quarter and 4.1%in the final three months of 2011.

Manufacturing activity shrank for the second straight month in July, a private survey said Wednesday. Consumer confidence improved slightly last month but remains weak.

Rising pessimism about the future is taking a toll on businesses and consumers, many economists say. Europe's financial crisis has weakened that region's economy, hurting U.S. exports. Worries have also intensified that the U.S. economy will fall off a "fiscal cliff" at the end of the year. That's when tax increases and deep spending cuts will take effect unless Congress reaches a budget deal. A recession could follow, Fed Chairman Ben Bernanke has warned.

Americans are responding by spending less and saving more. A big reason growth slowed in the second quarter was that consumer spending, which accounts for roughly 70% of economic activity, slowed to an annual growth rate of 1.5%. That was down from 2.4% in the first quarter.

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