Unemployment rate hits five-month high

Even if the Fed were to take a breather on Tuesday, some economists believe rates probably will need to go up in September or some other time later this year to fend off inflation. “All the inflation indicators are flashing yellow and may soon be flashing red,” warned Nariman Behravesh, chief economist at Global Insight.

Federal Reserve Chairman Ben Bernanke told Congress last month he was concerned about rising prices, but hoped a slowing economy would ease inflationary pressures.

Workers’ average hourly earnings rose to $16.76 in July, 0.4 percent higher than in June and slightly faster than economists were expecting.

Wage growth is welcomed by workers. But a rapid and sustained pickup in wages, if not blunted by other economic forces, can touch off inflation fears.

For the last 12 months, wages have gone up 3.8 percent. But those wage gains are still trailing inflation, economists said.

The hiring slowdown comes as companies cope with soaring energy prices and higher interest rates. Oil prices reached a new closing high of $77.03 a barrel in the middle of July, though they have moderated slightly since then.

In these conditions, businesses and consumers — engines of economic activity — have turned cautious. That, in turn, has slowed the economy.

Growth in the second half of this year is expected to stay subdued, at a pace of about 2.5 percent to 3 percent, according to economists’ projections.

The economy slowed to a pace of 2.5 percent in the April-to-June quarter, less than half the brisk 5.6 percent pace seen in the first three months of the year.

With the economy and the labor market weakening, the hunt for a job is taking longer.

The average time that the 7.2 million unemployed spent searching for work in July was 17.3 weeks. That was up from 16.2 weeks in June and was the longest since February.

The slowing in the job market and in overall economic activity comes as President Bush — in an election year — is getting low marks from the public for his economic stewardship.

Commerce Secretary Carlos Gutierrez, in an interview with The Associated Press on Friday, expressed confidence that the economy is in fundamentally good shape. The 113,000 job gain is “a healthy number, and the key thing is to keep job growth going,” he said.

Democrats, however, worry that the job market could turn worse. “Payrolls are not expanding at a very strong pace, and there is increasing concern that slower economic growth will dampen job creation even more,” said Sen. Jack Reed, D-R.I.

MORE FROM STOCKS & ECONOMY

Stocks & economy Section Front

Stocks end back-and-forth day slightly up New home sales drop as recovery teeters Consumer sentiment improves in December Home resales surge to nearly 3-year high Incomes rise at fastest pace in six months   Pump prices to stay flat over holiday weekend Geithner sees U.S. job growth by spring Home sales surge, boosting recovery hopes Advocates want more for black unemployed States’ jobless funds going ‘absolutely broke’ Stocks & economy Section Front   Add Stocks & economy headlines to your news reader: