State’s Jobless Rate Falls; U.S. Picture Mixed

California’s unemployment rate fell sharply last month, in a tentative sign that the state economy might be stabilizing, while a mixed U.S. jobs picture signaled a precarious national recovery, with hundreds of thousands of discouraged job-seekers abandoning the quest for work.

The state’s jobless rate dropped to 7.6% in July, after having soared to a seven-year high of 8.2% in June. Nationally, the unemployment rate dropped a bit, to 6.8% from 7% of the work force, the Labor Department reported Friday.

But the state and national economies diverged in the important area of payroll employment. After recent declines, California’s job rolls remained about the same as the month before, when seasonal factors are screened out. Gains in service industries offset declines in manufacturing and construction.

“I would call this basically an encouraging report,� said Joseph A. Wahed, chief economist at Wells Fargo Bank in San Francisco. “It confirms that we are slowly, slowly--very slowly--turning the corner.�

Nationally, industry payrolls shrank by 51,000, raising fears that the U.S. economy could be sinking back into a recession.

“The trend and message of the July report is one of weakness, of an economy at considerable risk of slipping out of the recovery phase,� said Lynn Reaser, an economist at First Interstate Bancorp in Los Angeles.

Many analysts said that swift action by the Federal Reserve Board to ease interest rates may be necessary to prevent the economy from tumbling back into a slump, a situation known as a “double-dip� recession.

Factory payrolls nationwide remained unchanged in July, after having fallen by 50,000 the prior month. Motor vehicle, textile and apparel employment rose, offsetting a continued decline in jobs in industrial machinery, electronic equipment and food processing.

“The big news is that the number of people on payrolls dropped . . . and the forecast was for 50,000 new jobs,� said John Makin, an economist at the conservative-oriented American Enterprise Institute in Washington. “I thought the economic bounce-back we saw in May and June would carry into the third quarter, so I was forecasting 80,000 new jobs.�

The drop in the number of jobs nationally “puts in serious question the viability of the recovery,� Makin maintained.

On its face, the national unemployment rate, which fell by two-tenths of a percentage point from June, sounded like a favorable gauge for the U.S. economy.

President Bush hailed the national figures as evidence that the economic recovery was on track. “I was delighted to see the unemployment come down--still too high--but moving in the right direction,� he said at a Rose Garden news conference.

But economists said that a major factor in the rate’s decline was the fact that many women and blacks apparently became too discouraged to continue looking for jobs--reducing the unemployment rate, which is calculated partly on the size of the labor force.

Largely because of that phenomenon, the overall labor force declined by 420,000 persons in July.

In contrast to the national picture, California’s sharp drop in unemployment was linked more to a modestly improving jobs picture than to a shrinkage of applicants, according to analysts.

The state statistics come from a smaller sample and therefore are more volatile than the national figures. Still, some economists noted that the California picture appeared to look somewhat better than in recent months.

Last month, job rolls increased in a range of service industries, including retail and a category that includes finance, insurance and real estate. Those and other gains were enough to offset losses in construction and durable manufacturing, a category that includes aircraft and other big-ticket items.

In past months, the California job totals have declined by the thousands.

“This is the pattern you’d expect to see if growth in the overall economy is going to resume,� said David G. Hensley, director of the UCLA Business Forecasting Project.

But he cautioned against relying too heavily on one month’s statistics: “We’ll see if that pattern is sustained.�

Although the California report, released by the state Employment Development Department, actually showed a gain of 38,300 jobs on a seasonally adjusted basis, the increase was a fluke--reflecting a growing number of teachers who are paid year-round these days. In the past, these same teaching jobs would have been counted as declines during summer recess.

Nonetheless, “These people are going to be earning more money and spending it here rather than in Paris or London,� said Wells Fargo’s Wahed. “That’s a positive factor.�

Concerns continue to surround both the state and national economies. In recent days, an unusually large number of corporations have announced layoffs, including Los Angeles-based Arco, which Friday announced plans to cut 1,500 jobs in several U.S. cities.

The July labor report said that the average work week dropped to 34.1 hours in production and to 40.7 hours in manufacturing, another downbeat signal. This gauge of economic activity had been growing in May and June, raising expectations that employers would soon begin hiring new workers.

Many economists had predicted that in July the unemployment rate would stabilize at about 7% but that the number of jobs would begin to grow rather than shrink. “Essentially, the only industry that is adding jobs, as has been the case consistently, is health care,� Reaser said.

Calling the national decline in payroll employment “shocking,� analysts at the Merrill Lynch investment firm Friday predicted that the Fed would lower interest rates sometime this month. Yet a Merrill Lynch report by economist Bruce Steinberg found that the economy still was growing.

Clearly, the strength of the U.S. economy will play a major role in California’s own struggle to resume economic growth, because the state and national economies are so deeply interlinked.

“The U.S. looks dicey--and that certainly will have implications for an attempted recovery by the state,� UCLA’s Hensley said.

Peterson reported from Los Angeles and Hawkins from Washington.

Unemployment Among Groups

Here are the unemployment rates for July among certain demographic groups, as reported Friday by the Labor Department. The percentages are seasonally adjusted.

July June July Category 1991 1991 1990 Civilian 6.8 7.0 5.5 Adult Men 6.5 6.6 4.9 Adult Women 5.4 5.9 4.7 Whites 6.2 6.2 4.7 Blacks 11.8 13.1 11.4 Latinos 9.5 9.8 7.9 All Teens 20.6 19.2 15.8 Black Teens 37.4 28.9 31.1

Source: Associated Press