Strong hiring shows depth of expansion

A growing United States economy is starting to soak up the ranks of the unemployed.

Service-sector firms from accounting to hotels to restaurants are on a hiring binge. Their search for workers is starting to cause the labor markets to tighten - which is beginning to reduce the ranks of those who have been searching for work. In the months ahead, economists anticipate the quest for workers will spread to the manufacturing sector, which has been laying workers off to date.

A healthy job market has important implications for the economy - from Federal Reserve policy to the mood on Main Street. More workers add buying power, sustaining the economic recovery. Job growth also increases the amount of taxes collected, which could help reduce the federal budget deficit. It could also help wages increase, which will help consumers keep up with rising interest rates and higher fuel prices.

"Job creation is the lifeblood of the economy and it's flowing very good right now," says Anthony Chan, an economist at JPMorgan Asset Management in Columbus, Ohio. "You have everything working right."

The evidence of this improvement surfaced Friday, when the Department of Labor reported 207,000 new jobs were created in July, the best showing since April. This was a marked improvement over the 166,000 created in June. Importantly, wages rose 0.4 percent, twice as fast as economists had anticipated. The unemployment rate remained at 5 percent as news of a better job market spread and more people entered the workforce.

"We saw a big surge in the labor-force growth of 450,000 people, and this tells me when people realize the economic recovery is real, they will come out of the woodwork," says Mr. Chan.

The improvement in the labor market is not a surprise to Roy Krause, president of Spherion, an employment agency based in Fort Lauderdale, Fla. "We have more jobs and orders than people," he says, including a surge in permanent hiring. Finding quality candidates is proving difficult, he says.

The job growth, however, has yet to spread to the manufacturing sector. Last month, mainly because of layoffs in the auto sector, employment dropped by 4,000 workers. "Textiles continue to bleed jobs, and furniture is another industry the Chinese have been colonizing over the last couple of years," says Tom Duesterberg, president of Manufacturers Alliance/MAPI.

Over the past three months, industry has announced about 300,000 layoffs, according to John Challenger of Challenger, Gray and Christmas in Chicago. Among the companies announcing significant layoffs are Hewlett-Packard, Ford, GM, Kodak, and Winn-Dixie. "I think the layoffs are suggesting the final stages of the expansion," he says.

But the pace of layoffs are running about the same as last year, when total employment grew by 2 million jobs. Many of these jobs are in small- to medium-size companies. "They can't hire people fast enough," says Joyce Gioia, president of the Herman Group, business strategist in Greensboro, N.C.

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