MADELEINE BRAND, host:
Back now with DAY TO DAY. I'm Madeleine Brand.
New employment figures are out today, and they're not exactly blowing the socks off economists. The Labor Department says the economy created 78,000 jobs in May, a lot less than expected, the slowest payroll expansion in nearly two years. We're joined by "Marketplace's" John Dimsdale in Washington.
And, John, what are the details?
JOHN DIMSDALE ("Marketplace"): Well, you know, Madeleine, the economy's been such a good performer so far this year, with strong growth and companies reporting good earnings, that the experts had predicted that recent improvements in employment would continue and we'd see maybe 175,000 new jobs last month. So 78,000 was a real disappointment, the smallest job growth since August of 2003. Several parts of the economy--manufacturing and the hospitality industry, for example--even lost jobs in May. Salary gains were also disappointing, up only 2/10ths of 1 percent, which means average paychecks are rising more slowly than inflation.
BRAND: Well, John, why were the experts so far off?
DIMSDALE: Well, for one thing, productivity continues to increase. Improvements in technology and efficiencies allow companies to produce more goods and services without having to hire as many workers. Plus, these stubbornly high oil prices are a real drag on the economy, and it's hard to measure that in the short term.
BRAND: So if this is a sign of a slowing economy, what does that mean for the all-important interest rates?
DIMSDALE: Yeah, as you know, the Fed's been gradually increasing those short-term rates for a year now. And if, indeed, the economy has stumbled, the Fed may be inclined to hold off on more increases. That would be a welcome sign for the stock market since higher interest rates make borrowing more expensive. The view that the Fed may be just about finished with its tightening was reinforced this week when one Fed member said during an interview the Fed was in the `eight inning' of rate increases, giving the impression there would only be one more ratchet up in the current cycle. And that, you know, could mean this next meeting, which is the end of this month.
BRAND: But, John, there were statistics out earlier this week pointing to higher inflation, and usually, if I'm not mistaken, that does put more pressure on the Fed to keep raising rates, right?
DIMSDALE: You're right. You're thinking of the government's survey of labor costs, which showed a hefty increase during the first quarter of the year, 3.3 percent, which was revised up from an earlier estimate of only 2.2 percent. That's an important gauge of inflation, and it prompted speculation that the Fed still has a ways to go on increasing interest rates.
So, you know, as usual the economy is sending conflicting signals. More proof of that: There was some good news in today's unemployment report. Construction companies, retailers continued to produce impressive numbers of new jobs. And a separate survey of households found that the unemployment rate actually slipped 1/10th of 1 point to 5.1 percent.
We'll look more closely at these numbers later today on "Marketplace." Plus, our series on think tanks and the money behind them continues.
BRAND: John Dimsdale of public radio's daily business show "Marketplace." And "Marketplace" is produced by American Public Media.
Have a great weekend, John.
DIMSDALE: Thanks, Madeleine.
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