WASHINGTON — The nation's jobless rate rose to 5.6% in August for the second monthly increase in a row, the Labor Department reported Friday, but there was little evidence that the economy is falling into a recession.
Excluding the federal work force, which is shrinking because of layoffs of temporary census counters, the economy created about 45,000 new jobs in August. July's figures were revised upward to show modest job gains of roughly 85,000 outside the federal work force, rather than the previously reported losses.
"The economy is still barely hobbling along, but these figures should put off recession fears," said Kathleen Cooper, chief economist at Security Pacific National Bank in Los Angeles. "Those on the recession bandwagon are going to have to wait."
The closely followed jobs data, the first firm evidence of the economy's health since Iraq's invasion of Kuwait on Aug. 2, demonstrated that the U.S. economy remains mired in its almost 3-year-old path of weak growth.
Last month's rise in the civilian jobless rate, up from 5.5% in July and 5.2% in June, brought unemployment to its highest level in two years. Unemployment last hit 5.6% in August, 1988, and has not been higher since March of that year, when it was 5.7%.
In California, the jobless rate rose to 5.4% in August from 5.1% the previous month.
Although far from robust, the job figures were not bad enough to persuade the Federal Reserve to ease credit immediately, analysts said. Despite pleas from some economists to stimulate growth to avoid a recession, the Fed took no action in money markets Friday to lower interest rates.
"If it's not quite flat-lined," argued Martin Regalia, chief economist at the National Council of Savings Institutions, "it's time to get the jumper cables out and do something."
But Fed officials have indicated in recent weeks that they want to judge the impact of the recent oil price surge on inflation and growth before taking any steps to lower interest rates.
"The Fed is still not quite sure that the economy is sliding over the edge," said John Silvia, an economist at Kemper Financial Services in Chicago. "It still looks to me like the next move in rates will be downward because the economy is still sliding, but the evidence isn't weak enough to prod them to move right away."
Nevertheless, Janet Norwood, commissioner of the Bureau of Labor Statistics, warned that the job market is continuing to slacken.
"The August data shows the first signs of trouble in two key unemployment indicators," Norwood said in congressional testimony, citing a rise in the number of recently unemployed persons and a sharp increase in the number of people forced out of their last job.
Including the census layoffs, total payroll employment fell by 75,000 last month after a 90,000 loss in July.
While many analysts expect the recent oil shock to bring almost eight years of economic growth to an end later this year, so far the economy has refused to sink.
"The U.S. economy is like an ocean liner," said David Levine, chief economist at Sanford C. Bernstein & Co. in New York. "It's very hard to move it off course."
Consistent with an earlier private report by purchasing agents that showed a slowdown in manufacturing, the number of factory jobs continued to decline in August, with those working in the electronic and transportation industries bearing the brunt of the impact. Last month's manufacturing loss was 45,000, leaving the number of factory jobs 455,000 below its post-recession peak in January, 1989.
Construction employment also continued its recent downward trend, with a 40,000-job loss in August. Construction, depressed by the real estate slump in much of the nation and a squeeze on lending by banks and savings institutions plagued by bad loans, has lost nearly 100,000 jobs in the last three months.
But service sector employment rose by 70,000, with gains in health services and among state and local governments outweighing the federal layoffs.
Labor costs, which have been on the rise, slowed to a moderate pace in August, providing some hope that underlying inflation might be on the wane. But the recent spurt in oil prices is expected to overwhelm, at least for the next several months, improvements outside the energy sector.