By  on May 7, 2007

WASHINGTON — Hampered by declines in department store payrolls, total U.S. job growth slowed to a more than two-year low last month.

The increase of 88,000 seasonally adjusted positions compared with a gain of 177,000 jobs in March, and was the smallest increase since November 2004, the Labor Department said. The unemployment rate rose to 4.5 percent from 4.4 percent in March.

As gasoline prices surge and home building cools, retailers reined in head counts by 26,100, as department stores reduced payrolls by 11,300 to 1.6 million. Bucking the trend, apparel and accessories stores added 6,700 workers for a total of 1.5 million.

"There's a hint that specialty stores are gaining from the department stores," said Nigel Gault, U.S. economist for Global Insight, cautioning that statistical issues can skew figures over short periods of time. "The one thing that's on the consumer's mind right now is gasoline prices going up very sharply. Maybe that weighs more heavily for people who shop at department stores than at specialty stores, which tend to be a bit more expensive."

Gas prices pinch low-end consumers more than their wealthier counterparts; a gallon of regular sold for $3.01 on average Friday, up from $2.70 a month earlier, according to the American Automobile Association.

Pressured by overseas competition, employment at U.S. apparel producers declined by 2,400 to 221,500 positions, and the number of textile mill jobs fell by 2,800 to 174,300. Textile product mills, however, added 600 jobs for a total of 157,900.

Labor Secretary Elaine Chao said April's job growth "shows that despite rising energy prices and a slowdown in residential housing, the economy continues to produce new jobs."

The U.S. economy has been growing slowly, with a modest 1.3 percent expansion in gross domestic product for the first quarter. Reflecting the weakened housing market, the construction industry lost 11,000 jobs last month.

Economists and stock pickers are also watching employment and gross domestic product growth, and considering the ramifications on interest rates.

Should the economy cool too much, the Federal Reserve might reduce its benchmark interest rate of 5.25 percent to spur growth. That rate trickles down to how much consumers have to pay to borrow money for everything from cars to college educations.A temporary slowdown in employment growth could be absorbed by the economy, but sustained sluggishness would cause more problems.

"If this month's employment numbers were to last, generating less than 100,000 new jobs a month, that would probably not be enough to absorb labor force growth and you might start to see the unemployment rate ticking up," said Harry Holzer, a professor of public policy at Georgetown University.

Employment is vital to growth, since consumer spending makes up two-thirds of the economy and people will pull back on their purchases if they lose their jobs or feel their jobs are at risk.

"What we're seeing is a gradual slowing in the rate of growth in employment and we would expect that to continue with housing being a big drag," said Paul Nolte, director of investments at Hinsdale Associates. "That will work its way to retail sales. We will see demand for retail items coming down."

Spending is also contingent on how much people earn on the job. Across the economy, average weekly earnings dropped to a seasonally adjusted $583.05 in April from $583.42 in March.

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