Slow economic growth weighs on job market

WASHINGTON -- Unemployment edged up to 4.5 percent last month and job growth cooled, the government reported yesterday, showing how sluggish economic growth is starting to loosen the nation's tight labor market.

But the markets showed little reaction to the weak numbers, since the jobless rate remains low by historical standards. Also, many analysts, including those at the Federal Reserve, expect unemployment to creep higher this year, to a level closer to 5 percent. That would fit with moderate economic growth, not a sharper downturn.

"I would not view this as the forerunner of a recession," said Nigel Gault, North American macroeconomics group manager at Global Insight. "In a sense, this is the last piece of the slowdown . . . and the puzzle up to now has been why hasn't the labor market softened."

But other analysts cautioned that a weakening labor market will make it harder for many households to pay their bills at a time of high gasoline and food prices, falling home values, and high debt .

"Absent considerably stronger job growth, recessionary concerns will begin to loom large," said Jared Bernstein, a senior economist at the Economic Policy Institute.

Employers have turned more cautious , adding just 88,000 jobs in April and a modest 129,000 per month on average so far this year. That's down from last year, when job gains averaged 189,000 jobs per month.

The shift in the job mix reflected the strengths and weaknesses in the economy. Employers added workers in the service industries that have thrived in recent years, such as healthcare, education, law, accounting, management, hotels, the movie, and recording industries.

Those gains more than offset job cuts reflecting the slumps in housing and the domestic auto industry.

The Labor report should reassure Fed policymakers, who have worried that a tight job market might fuel higher inflation and are counting on a modest increase in unemployment to help cool price pressures.

If the economy follows the Fed's forecast and expands at a moderate pace, the central bank is likely to hold its key short-term interest rate steady at 5.25 percent at its meeting Wednesday, and perhaps for the rest of the year.

But policymakers also worry that inflation is already too high and might flare higher. And they see growing danger that the economy might weaken further if unemployment rises more than expected, prompting a pullback on spending.

Any of those problems would put the Fed in a bind. Raising interest rates to fight inflation might deepen the economic slowdown; cutting rates to spur growth might fan price increases.