Treasury's Swagel says U.S. economy healthy

WASHINGTON (Reuters) - Strong U.S. jobs data released on Friday shows the American economy is "fundamentally healthy" and continued consumer confidence and spending will spur more business investment, the U.S. Treasury's chief economist said on Friday.

Phillip Swagel, the Treasury's assistant secretary for economic policy, also reiterated the Treasury's view that the U.S. housing sector may have reached a bottom and that U.S. economic growth should pick up in the second half of 2007 from a sluggish first-half gain of around 2 percent.

"Today's data indicates the U.S. economy remains fundamentally healthy. The unemployment rate is low, job creation is strong and steady and wages are rising," Swagel told a media briefing.

U.S. employers added a stronger-than-expected 180,000 new non-farm sector jobs in March and the unemployment rate fell to a five-month low of 4.4 percent, the Labor Department reported on Friday.

Analysts said the job figures implied the economy was on its way toward a successful "soft landing" in which growth slows enough to contain inflation but does not sink into a punishing downturn.

Swagel said growth in jobs and wages was emboldening consumers to keep spending, and that should help reverse a slowdown in business spending in the final months of 2006 and early months of 2007.

"Our optimistic view of the economy really reflects the belief that firms, as they see consumption remaining strong and consumers still spending, in a sense will get the signal and start to invest again," Swagel said.

He said the Treasury was closely watching the housing sector, but said the difficulties in the subprime mortgage sector appeared to be contained and were not threatening to spill over to damage the broader economy or lead to a tightening of overall credit.

The Treasury also is concerned about difficulties in the domestic automotive sector, but Swagel said the continuing "secular decline" in manufacturing employment, with 16,000 jobs lost in March, was being cushioned by manufacturing productivity and wage gains. Job creation in other sectors of the economy were more than making up for these losses, he said.