Economy shows resilience; jobless rate falls as dollar rises

The latest barometers flashed encouraging signs that the economic slowdown may not be as pronounced as some had feared. Still, there's much caution — about housing, credit and other problems.

"Economic or financial conditions could take an unexpected stumble at any time," warned Stephen Stanley, chief economist at RBS Greenwich Capital.

Employers eliminated 20,000 jobs in April — not nearly as many as the 81,000 in March, and the fewest monthly losses so far this year, the Labor Department reported. The unemployment rate dropped to 5 percent, from 5.1 percent.

Stresses were still evident. It was the fourth straight month that employers cut jobs — bringing total losses to 260,000.

Many analysts were bracing for much more carnage. Yet, the new figures "can't be taken as a signal that the economy is out of the recession woods," said Nigel Gault, of Global Insight.

On Wall Street, investors initially responded enthusiastically to the employment news, with the Dow Jones industrial average rising more than 100 points, but the market gave back part of that gain and closed up 48.20 points. Investors were keeping their euphoria in check, especially since stocks had already shot nearly 190 points higher on Thursday.

Still, the tone in the market was clearly more upbeat. Thursday's advance came on a growing sense that the economy isn't as wounded from the credit crisis as many people have feared.

Investors were also reassured by the dollar's show of strength this week. The greenback's latest gains have come on expectations that the Federal Reserve is likely to hold interest rates steady — a trend that makes U.S. assets more attractive to overseas buyers. The U.S. currency rose this week to a five-week high against the euro.

In turn, the dollar's advance has had an impact in the commodities market. Food prices — such as for wheat and soybeans — eased. And while oil did rise Friday, that was because of supply concerns rather than moves in the dollar.

"Things are a little brighter," Ken Mayland, president of ClearView Economics, said of all the developments. "The economy is seen as doing a little bit better" and that's contributing to the stronger dollar and calmer food prices, he said.

Another report out Friday showed orders to U.S. factories rose a bigger-than-expected 1.4 percent in March after two straight months of declines. Higher prices, though, accounted for part of the gain.

Businesses are handing out pink slips as they cope with an economy that is teetering on the edge of a recession, or possibly in one already. A severe housing slump, harder-to-get credit and financial turmoil have forced people and businesses to be more cautious in their spending. And that has hurt the economy.

To help relieve credit problems, the Federal Reserve announced Friday it would boost the availability of short-term loans to commercial banks to $150 billion in May from the $100 billion supplied in April. The goal is to supply a source of cash to squeezed banks so that they'll keep lending.

On the employment front, construction companies, manufacturers, retailers, mortgage brokers and temporary help firms were among those shedding jobs in April. Those losses eclipsed gains elsewhere, including education, health, hotels and motels, bars and restaurants, and the government.

All told, there were 7.6 million people unemployed as of April, up from 6.8 million a year earlier.

Voters are keenly worried about the country's economic problems and so are politicians — in Congress, in the White House and on the campaign trail.

President Bush expressed hope Friday that the economic-stimulus rebates beginning to reach taxpayers this week will help lift activity. "This economy is going to come on. I'm confident it will," Bush said.

Workers with jobs saw scant wage gains.

Average hourly earnings for jobholders rose to $17.88 in April, a tiny 0.1 percent rise from the previous month. Over the past 12 months, wages have grown by 3.4 percent. If the job market weakens in the months ahead, wage growth probably will slow, too, making people even less inclined to spend. That would spell further trouble for the economy.

The new jobs figures come from two different statistical surveys, which can provide — as in Friday's case — a somewhat conflicting picture.

The seasonally adjusted overall civilian unemployment rate — 5 percent in April — is based on a survey of 60,000 households. It showed that 362,000 people said they found employment last month, outpacing the number of new people who couldn't find work. Economists tend to put more stock, however, in the much broader business survey of 400,000 work sites that was used to calculate the job loss figure.

To help bolster the economy, the Fed lowered interest rates on Wednesday, but signaled that its rate-cutting campaign could be drawing to a close.

Fed officials and the Bush administration are hoping that the Fed's aggressive rate cuts since September plus the government's $168 billion stimulus package will lift the country out of its slump in the second half of the year.

Even if that happens, economists predict the unemployment rate will climb higher, hitting 6 percent early next year.

Employers often are reluctant to beef up hiring until they feel certain that a recovery has staying power.

The economy advanced at a snail's pace of just 0.6 percent in the first three months of this year as people and businesses clamped down on their spending. That marked the second quarter in a row of such feeble growth.

"I think we are in a recession," said Mark Zandi, chief economist at Moody's Economy.com. Even thought the employment news was "encouraging ... it is much too premature to signal that the economic coast is clear."