By and  on August 7, 2006

WASHINGTON — Apparel and textile firms shed a seasonally adjusted 3,200 jobs in July compared with June, while department stores also reduced payrolls. But specialty stores added workers, the Labor Department reported.

Overall unemployment rose last month, news that came a day after the Senate voted down a bill that would have raised the minimum wage for the first time in nine years.

In the fashion and apparel sectors, textile mills cut a seasonally adjusted 2,400 positions in July, lowering employment to 194,900, as apparel factories reduced head counts by 1,000 to 249,500. Textile product mills managed to add 200 positions, for a total of 168,800. The domestic industry has been shrinking for years, as more apparel sold to U.S. customers is made abroad.

Department stores reduced head counts by 3,100 to 1.6 million compared with June, while apparel and accessories stores added 8,900 positions to employ 1.4 million in July. Consolidation in the department store realm, particularly the combination of Federated and May Department Stores, appears to be fueling at least a part of the workforce reduction.

The broader economy added 113,000 jobs, fewer than the 144,000 predicted by economists, as the unemployment rate rose to 4.8 percent from 4.6 percent, marking the first increase since February.

"Businesses are suffering from the twin hurdles of higher interest rates and record energy prices, and that is something that's causing them to pull back on the hiring reins," said Argus Research Corp.'s chief economist Richard Yamarone.

The Federal Open Market Committee, which has increased the benchmark federal funds interest rate 17 consecutive times to keep the economy from growing too quickly, meets again on Tuesday.

"I'm not sure we're totally out of the woods in terms of further Fed tightening, but it may be now a good while before we see another [rate hike]," said Michael Niemira, chief economist and director of research at the International Council of Shopping Centers. "What we're seeing is a moderation ... in economic growth. It's not totally in place. It's more of a transition, but there are also some worries that we haven't seen play through, on the housing side in particular."The cooldown in the housing market might ultimately reduce retail sales, he said.

On Capitol Hill late Thursday night, the Senate voted down by 56 to 42 a legislative package that would have raised the minimum wage to $7.25 from $5.15 an hour in a three-year phase-in, provided a permanent cut in inheritance taxes for multimillionaires and granted an extension of tax credit programs to small businesses.

Republicans needed 60 votes to advance the bill, which passed the House on July 29. But the legislation ran aground over sharp political bickering.

For retailers, the bill's defeat was bittersweet. On the downside, many retailers utilizing federal tax credit programs that expired at the end of 2005 will continue to be burdened because the Senate failed to renew them. On the upside, small retailers and independent boutiques will not face higher minimum wage rates, which many economists argue lead to layoffs and a reduction in new hires.

"The tax-extender package, for a lot of the business community, is a major focus of concern because these provisions have expired," said Steve Pfister, senior vice president of government relations at the National Retail Federation. "It is really difficult to run a business under these circumstances and have certainty with respect to the programs they use."

Pfister said the NRF's members supported the bill because it included offsetting provisions — extension of the tax credit programs — to "ameliorate the impact [of a wage hike] on business."

Harry Holzer, professor of public policy at Georgetown University, said, "On net, an increase in the minimum wage would have helped very low-wage workers. I don't think it would have generated a large loss of employment."

Holzer said the ratio of the minimum wage to average wages in the economy has fallen to its lowest level since the Fifties. Holzer objected to the broader bill because it included estate tax cuts, which he said would hurt the economy by increasing the budget deficit.

Senate Majority Leader Bill Frist has insisted he will not split the minimum wage increase from the estate tax cut, and he could try to bring the same bill to the floor for a vote when the Senate reconvenes next month.

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