Slowing economy? Not in the job market.

If the economy is slowing down, as reports appear to indicate, it seems no one told the human resources department.

Corporate bosses are still adding to payrolls in a relatively healthy manner, Wall Street economists say. It also appears that companies have yet to hand out the pink slips.

On Friday, the Labor Department will report the official employment numbers for July – data that may have a significant bearing on the next move by the Federal Reserve, which meets to set interest-rate policy next Tuesday.

A robust labor market may well tip the Fed toward raising interest rates for the 18th consecutive time. But if there are signs that pressures on the labor market are easing, the Fed might feel more comfortable taking a pause.

"The market is expecting the Fed to pause, but a strong job-creation number, say 175,000 or more, would give them reason to tighten," says Mark Zandi, chief economist at Moody's Economy.com. "Most of the improvement in the labor market is because companies have stopped laying off."

Tuesday, Challenger, Gray & Christmas reported that planned job cuts in July amounted to 37,178, a drop of 45 percent from June and the lowest July job cut in six years. The Chicago-based company says that job cuts for the year may well be under 1 million for the first time since 2000.

"It seems as if employers put whatever plans they had on hold to [reduce] their workforce," says CEO John Challenger. "It does suggest that retention of people is a top priority right now."

The low layoffs suggest the job market may still be "pretty tight," says economist Robert Brusca of FAO-Economics in New York. "In fact, we have a shortage of low-paid workers but a surplus of high-paid jobs at places like GM, Ford, and Delphi."

The healthy job market is a sign of the complex character of the economy, says Ann Owen, professor of economics at Hamilton College in Clinton, N.Y. "We see some strength and some signs of trouble down the road," says Ms. Owen, who worked as an economist at the Federal Reserve in Washington.

Last week, for example, the Commerce Department reported that the nation's gross domestic product slowed to a 2.6 percent growth rate in the second quarter, just about half the pace of the first quarter. The major reason for the slowdown was a sharp downshift by the housing industry, beset by rising mortgage rates.

At the same time, the inflation rate is continuing to run hotter than the Federal Reserve would like to see. Tuesday, the Commerce Department reported that one measure of inflation, the price index for personal consumption expenditures, rose by 0.2 percent in June and was up 3.5 percent over June 2005. Taking out food and energy, the index was still up 0.2 percent, and 2.4 percent over June 2005.

"Those numbers are little bit higher than the Fed feels comfortable with," says Owen. But she adds, "The dilemma is that the numbers only tell the past, and you must make policy on what you think will happen."

Owen believes this is a particularly tough call for the Fed. In recent weeks, some Fed governors have said they are concerned about economic growth going forward. Fed Chairman Ben Bernanke has sounded as if he thinks the Fed may need to pause depending on the economic data. "On the line is the credibility of the Fed under the new chair," says Owen. "If they pause and it's the wrong call, people will say Bernanke is not committed to a low inflation rate. But if they raise rates and it's the wrong call, people will say he's overzealous."

If the Fed does raise short-term interest rates a quarter percentage point, it would increase the federal funds rate, the rate that commercial banks pay to borrow money from the Fed overnight, to 5-1/2 percent. Real interest rates – that is, interest rates after inflation – are close to 3 percent. "That is pretty consistent with a pretty tight Federal Reserve policy," says Mr. Zandi, adding, "it's one of the arguments for people who want the Fed to wait and see what damage past rate increases have had."

If the Fed does decide to hold off, Mr. Challenger thinks there will be increased signs of layoffs ahead. The fall, in fact, is when many companies begin the process of trimming staff, he says. "It's my sense we're nearing the end of the expansion. We're kind of at a turning point."

For example, he notes that Intel, which recently announced it would lay off 1,000 workers, is also reviewing every division within the company. In addition, Boeing has said it will shutter a Long Beach, Calif., plant if it does not get more orders for the C-17 transport plane by mid-August.

At the same time, Challenger points out, companies are trying to hold off on permanent layoffs because they don't want to lose skilled workers. In North Carolina recently, a John Deere plant asked 100 workers to take three months of unpaid leave to help the company avoid layoffs. "Companies realize there is a shortage of workers who can step in and help the company grow once business improves," he says.