While tens of thousands of jobs are being lost every month in the US manufacturing sector, the economy is still creating work opportunities at an unexpectedly high rate.
This accounts for the surprising report yesterday that the unemployment rate held steady at 4.5 per cent in July - still an historic low - despite the haemorrhaging of 49,000 manufacturing and 42,000 business jobs during the month. Wall Street analysts had predicted that the rate would rise as high as 4.7 per cent.
Nevertheless, the trend is still in the wrong direction and the US Federal Reserve chairman Mr Alan Greenspan has predicted the unemployment rate will rise to 5 per cent by the end of the year as technology and other beleaguered sectors complete cost-cutting programmes.
May and June unemployment figures were also revised favourably, which helps explain why consumer confidence remained higher in recent weeks than the statistics would appear to justify. Some 90,000 jobs were lost in June, rather than 114,000 as the Labour Department first reported. The 4.5 per cent unemployment rate in July matched that in June but was up on the 4.4 per cent in May.
The report is unlikely to affect the anticipated decision by the Federal Reserve to round off its rate-cutting programme with another quarter percentage point reduction when its policy committee meets on August 21st.
It showed a small increase in average hourly earnings by four cents to $14.35 in July, but this is unlikely to raise inflationary concerns at the Fed, which does not foresee inflation rising significantly this year. The central bank has cut interest rates six times this year, totalling 2.75 percentage points.
The jobs lost in July were matched by gains in the health services, engineering and management. The services sector, which usually dominates the employment sector, added only 5,000 jobs, with the 40,000 vacancies filled in bars and restaurants offset by lay-offs in clothing, food, building materials and gardening supply stores.
The continuing recession in the manufacturing sector brought job losses up to 837,000 in the last year. The biggest declines in manufacturing last month continued to be at two high-tech branches, electrical equipment and industrial machinery.
"On balance, hiring activity in the United States is at a standstill, which makes it all the more amazing how well consumer spending has stood up to this very weak reading on the weak labour market," economist Mr John Lonski of Moody's Investors Service said.
