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Jobless rate drops to 4.9%

U.S. companies added 169,000 jobs in August

AP graphic

WASHINGTON — The nation's unemployment rate dipped to a four-year low of 4.9 percent in August as companies added 169,000 jobs, a sign that the labor market continued to gain traction before Hurricane Katrina struck.

The latest snapshot of the United States' jobs climate, released by the Labor Department on Friday, buttressed observations by Federal Reserve Chairman Alan Greenspan and his colleagues that the hiring situation was gradually improving — a bit of good news for workers as they headed into the Labor Day weekend.

But the future of the nation's employment picture is murky — clouded by fallout from the devastating hurricane.

Friday's figures don't reflect the impact of Katrina because the data was collected before the storm slammed into New Orleans and a swath of Gulf Coast communities.

The 4.9 percent unemployment rate reported for August was down a notch from July's 5 percent rate and was the lowest since August 2001.

Treasury Secretary John Snow noted this improvement and said it showed the economy had good momentum that would enable it to withstand the economic fallout from Katrina and surging oil prices. Snow said growth would be a bit slower for a brief period of a quarter or two.

"I am confident, based on the strong economy that we have, that we will recover and recover well," he said. Snow, who cut short a vacation in London to return to Washington Friday, spoke to reporters at a late afternoon news conference at the Treasury Department after a meeting with Greenspan.

Snow said he and Greenspan "have a shared view of how things will play out." Private analysts also sounded an optimistic note.

"The economy is motoring along, and we are indeed creating more than a decent amount of jobs. But there are a number of hurdles that lie in our path of prosperity — record energy prices and the economic consequences of Hurricane Katrina," said Richard Yamarone, economist at Argus Research.

On Wall Street, the Dow Jones industrial average fell 12.26, or 0.12 percent, to 10,447.37. The Standard & Poor's 500 index slipped 3.57, or 0.29 percent, to 1,218.02, and the Nasdaq composite index closed down 6.83, or 0.32 percent, at 2,141.07.

For the week, the Dow rose 0.48 percent, the S&P added 1.07 percent and the Nasdaq climbed 0.96 percent.

Many economists believe the hurricane's fallout will slow overall economic growth in the months ahead as higher energy prices crimp consumers' and businesses' appetite to spend. Some believe growth in the final quarter of this year could come in at an anemic pace of around 2 percent.

Businesses around the country are expected to become more cautious in their hiring. Some economists predict that September's employment report will show the nation's payrolls shrinking and the unemployment rate rising. The government releases September's report early next month.

Hundreds of thousands of people have been thrust out of work in parts of Louisiana, Mississippi and Alabama because of Katrina. The jobless rate in the Gulf Coast is expected to spike to 25 percent or higher, and when the long rebuilding process begins it's likely the same people the economy had left behind before the

storm — the unemployed and working poor — will have the most trouble getting back on their feet.

Workers in flooded New Orleans, which faces major cleanup challenges, are taking the biggest hit.

"There's no question that the recovery is going to be much longer and more painful for the 28 percent of the local population in the New Orleans area living below the poverty line," said Liz Ann Sonders, chief investment strategist at Charles Schwab. "It's going to be much harder for the local economy to recover in the absence of resources and insurance."

Against the backdrop of economic uncertainty created by the hurricane and skyrocketing energy prices, a growing number of economists believe the Federal Reserve may decide to hold interest rates steady at its next meeting on Sept. 20. Others, however, continue to predict another quarter-point rate increase.

In Friday's report, U.S. employers added 169,000 jobs in August, reflecting increased employment in industries, including construction, professional and business services, health care and education, and financial activities. But manufacturers shed jobs for the third straight month, reflecting the industry's sometimes bumpy road to recovery from the 2001 recession.

Also encouraging was that payroll gains were revised up for both June and July. Employers in July added 242,000 jobs, an improvement from the government's initial estimate of 207,000 net job gains. For June, 175,000 jobs were added, up from a previous estimate of a 166,000 jobs gain.

The payroll gain of 169,000 reported for August was less than the 190,000 new jobs some economists were forecasting before the release of the report. Economists were predicting the unemployment would hold steady at July's 5 percent rate.