Running the Numbers

Jobs Data Indicates Economy Is Slowing
By EDUARDO PORTER

Employers added only 121,000 jobs in June, the government reported yesterday, indicating that the economy was slowing under the combined weight of high energy prices and rising interest rates.

But the government also reported that hourly wages rose at their fastest pace in five years, while the unemployment rate remained at 4.6 percent. This suggests that the labor market remains tight and may yet spur higher inflation.

The disparate data underscored the uncertain economic situation facing the Federal Reserve as it ponders whether to continue raising interest rates over the summer to cool the economy further or whether it is time to pause. Over the last two years, the Fed has steadily increased the benchmark federal funds rate from 1 percent to 5.25 percent.

"Today's numbers only tighten the vise the Fed finds itself in," said Carl Tannenbaum, chief economist of LaSalle Bank in Chicago. "The challenge is not to be overly restrictive as growth slows and still attentive to inflation risk."

Financial markets' reaction to the news was mixed, underscoring the difficulty in parsing an uncertain situation that seems poised between a cooling and an overheating economy.

Stocks slid, weighed down by concerns about the implications for inflation of the rising wages recorded in the employment report as well as an earnings warning from 3M and lower-than-forecast sales from Advanced Micro Devices. Both the Dow Jones industrial average and the Nasdaq composite index were down more than 1 percent. [Page B6.]

Most Wall Street economists had been expecting considerably higher payroll growth. So, the price of Treasury bonds rose and the dollar fell against major currencies as the weaker job growth supported the view held by some investors that a slowing economy would allow the Fed to pause in its monetary tightening.

Noting that the data suggested both that demand would slow and that the forces pushing inflation could intensify, Mr. Tannenbaum said, "There's a fine line between stagflation and a soft landing."

With consumer prices rising at an uncomfortable rate of around 4 percent, the Fed and its chairman, Ben S. Bernanke, have been expecting the economy to slow from the torrid pace of 5.6 percent growth recorded in the first quarter. A slowdown would help damp the inflationary pressures that have been strengthened by rising energy prices.

The weak payroll growth recorded in June by employers surveyed by the Labor Department appears consistent with this view, pointing to a cooling economy, weighed down by a slower housing market and moderating consumer borrowing and spending.

Wage growth remains flat. This has been an economic "recovery" for millionaires, not for the rest of us.