Manufacturing Adds Jobs

By John S. McClenahen Last month the manufacturing sector of the U.S. economy added 21,000 jobs, bringing the total of jobs created in U.S. manufacturing to 37,000 since January, according to U.S. Labor Department data released on May 7. From August 2000 through January 2004, manufacturing had shed jobs each month. Most of the 21,000 manufacturing jobs created last month were among such durable goods producers, primarily in fabricated metal products, which added 10,000 jobs, and machinery, which added 4,000 jobs. The overall U.S. nonfarm economy, of which manufacturing is part, added 288,000 jobs in April, roughly 100,000 more than economists generally expected. In March, the nonfarm economy added 377,000 jobs, revised Labor Department numbers show. The U.S. unemployment rate fell one-tenth of a percentage point to 5.6% in April from 5.7% in March. With jobs being created at a respectable rate, the lingering question is how soon, and by how much, will the Federal Reserve increase interest rates as a check on inflation. "The Greenspan Fed has not moved until [the economy] has created at least 1 million jobs," notes Jose A. Rasco, a senior economist at Merrill Lynch & Co., New York. "Our Fed reaction function suggests the Fed will move to tighten interest rates in August by 25 basis points to a 1.25% [federal] funds rate." However, UBS Investment Research, also in New York, believes that Chairman Alan Greenspan and his Federal Open Market Committee colleagues will make their move with a 25-basis-point increase at the end of June. "And the earlier start for Fed tightening means that the Fed will likely push the funds rate to 2% by yearend, rather than 1.75% as we previously projected."

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