Unemployment rate hits five-month high

updated 6:37 p.m. ET Aug. 4, 2006

WASHINGTON - Memo to job hunters: Note that the country’s employment machine is losing some of its oomph. It may take more work to find work.

Filled with caution, employers slowed hiring in July, pushing the nation’s unemployment rate to a five-month high and putting pressure on the Federal Reserve to take its foot off the economic brakes.

The Labor Department reported Friday that employers added just 113,000 new jobs in July, down from 124,000 in June — the latest in a string of mediocre job gains in recent months.

With companies wary of increasing workers in a slowing economy, civilian unemployment jumped from 4.6 percent in June to 4.8 percent, matching the rate of last February. The last time the jobless rate was higher was in December, at 4.9 percent.

“Companies are feeling the strain of rising costs for energy and raw materials as well as higher interest rates. They also remain uncertain about the economy’s prospects for the balance of the year. Therefore, they are reluctant to aggressively bulk up their payrolls,” said Lynn Reaser, chief economist at Bank of America’s Investment Strategies Group.

For blacks, the unemployment rate rose from 9 percent in June to 9.5 percent in July, the highest in eight months. The jobless rate for Hispanics. however, held steady at 5.3 percent.

It’s a challenging time for certain jobseekers.

Job cuts were reported at factories, department stores and telecommunications firms. Real-estate companies and specialty home-building contractors also shed jobs, reflecting the cooling in the once-hot housing market. Those employment losses tempered overall job growth.

Health care firms, computer designers, hotels and motels and foodservice companies were among those boosting employment.

The overall picture, though, was of a job market losing more momentum than many analysts had anticipated.

The Federal Reserve is meeting on Tuesday, and some economists believe the central bank will leave interest rates alone, taking its first break after tightening credit for more than two years.

Friday’s weaker job growth would justify such a breather, offering more evidence of slowing economic activity. “This pushes Fed policymakers toward a pause,” predicted Bill Cheney, chief economist at John Hancock Financial Services.

Other Fed-watchers who are worried about inflation, however, think policymakers have another interest-rate jump in store.

On Wall Street, jittery investors sent stocks slightly lower. The Dow Jones industrials, which were up in the morning, finished the day down 2.24 points at 11,240.35.

The Fed has raised rates steadily 17 times since June 2004 in increments of one-quarter of a percentage point. The Fed’s goal is to slow the economy enough to prevent inflation from taking off while not crimping economic activity so much that it throws the economy into a recession.

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