Employment growth lethargic, with just 32,000 new jobs in July

WASHINGTON - America's payrolls grew by an anemic 32,000 new jobs in July, suggesting the economy is stuck in summer lethargy three months before voters elect a president. The report rattled Wall Street and sent stocks tumbling.

The latest snapshot on employment growth, in a report Friday by the Labor Department, showed the smallest gain in hiring since December. Job gains reported earlier for May and June also were lowered.

"The economy has come close to a standstill this summer," said Mark Zandi, chief economist at Economy.com. "I think businesses' collective psyche is still quite fragile," he said, citing high energy prices, the possibility of terrorism and the Iraq war.

The unemployment rate, however, dipped to 5.5 percent last month, from 5.6 percent in June. The new rate was the lowest since October 2001.

The payrolls figure and the unemployment rate can sometimes go in different directions because they are derived from two separate statistical surveys.

That divergence gave both the Republican and Democratic camps something to talk about. The Bush administration cited the rate as evidence that its policies are working. The Kerry campaign pointed to the slowdown in job growth and the loss of 1.1 million jobs during Bush's presidency, shown by the payrolls, as proof that the president's policies are failing.

The Federal Reserve, meanwhile, is still expected to boost interest rates by one-quarter point at its next meeting on Tuesday, economists said. But if other economic data suggest the economy is cooling in the current quarter, that would make it less likely there would be further rate increases this year, they added.

On Wall Street, stocks fell sharply. The Dow Jones dropped 147.70 points to 9,815.33, the lowest close this year.

Fed Chairman Alan Greenspan, appearing before Congress last month, acknowledged the economy hit a "soft patch" in June. But he expressed confidence that it would be short-lived. Friday's payroll figures, however, indicated that the June slowdown wasn't an aberration.

"Clearly the economy is stuck in a soft patch. It is longer than we anticipated," said Wells Fargo's chief economist Sung Won Sohn. Sohn said his projection for economic growth in the July-to-September quarter, now at a high of a 4.5 percent annual rate, will need to be lowered.

The health of the economy and the availability of jobs are prominent issues in the presidential campaign. President Bush says his tax cuts have helped the economy rebound and that making those tax cuts permanent will spur more job creation.

"Our economy is continuing to move forward," Bush said, adding, "I'm not going to be satisfied until everybody who wants to work can find a job."

Democratic rival John Kerry contends Bush's policies benefit the wealthy, squeeze the middle class and aren't producing significant job growth. "The president keeps saying we've turned the corner. But unfortunately, today's job numbers further demonstrate that our economy may be taking a U-turn instead," Kerry said.

The unemployment rate is calculated from a survey of around 60,000 households in which people are asked to state whether they have jobs or are looking for work. By that household survey, the number of people who found new jobs increased by 629,000 in July.

The survey used to calculate the payroll figure is based on information from about 160,000 businesses and government agencies, covering roughly 400,000 individual work sites.