This is a partial transcript of "Special Report With Brit Hume," Aug. 6, 2004, that has been edited for clarity.

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JIM ANGLE, GUEST-HOST: The government released the latest unemployment numbers today showing a small gain in jobs in July, but far fewer than expected. What does it mean for the economy? Is this a temporary slowdown in an otherwise healthy recovery, or the sign of trouble ahead?

To talk about the meaning of today's report, we turn to Greg Valliere, chief strategist at the Schwab Washington Research Group (search).

Greg, thanks.

GREG VALLIERE, CHIEF STRATEGIST, SCHWAB WASHINGTON RESEARCH GROUP: Great to see you.

ANGLE: Let me — let's look at the numbers here before we get started and see what the results were today. Thirty-two thousand jobs created in July. Many had expected 200,000 or more. That brings us to about 1.5 million created since August of 2003.

We had been going along with pretty good job growth. A couple of other months were lowered a bit, but we've been doing pretty good since last August. Why the slowdown now?

VALLIERE: Something has happened since June; I thought it was the "June swoon," but it's gone on longer than that. Two things, very quickly, No.1 one is that the economy was on steroids earlier in the year. We had the tax refund checks. We had mortgage refinancing, a lot of money in people's pockets. Those factors have really waned. Secondly, energy. Oil prices, I think, are having a very corrosive, pervasive impact on the overall economy.

ANGLE: Now, an impact because you have consumers paying more for gasoline, probably paying more for other forms of energy as well. And you have employers who are paying more for energy, and perhaps having second thoughts about whether or not to hire additional workers.

VALLIERE: Absolutely. And I think most experts around Memorial Day would never have guessed that the energy spike would have had this negative an impact on the economy, but it has.

ANGLE: And no one would have anticipated that gasoline — that oil prices would have gone this high?

VALLIERE: And I think, yes. And I think you've got to say that for President Bush, who doesn't have many policy options left, one of the few things, cards, he could still play is to go to Mr. Putin, to go to the Saudi royal family and really urge them to produce more oil. Other than that, I don't think Bush has many options left.

ANGLE: Now, the economy had been growing fairly rapidly, as you pointed out. It slowed down the second quarter of this year. Last month, fed chairman Alan Greenspan said that there was a soft patch in the recovery, but didn't expect it to last that long.

There are some other signs that are a little more positive. You have factory orders up .07 of a percent last month. Went from a loss it a revised gain in May. What are the signs that suggest which way the economy is headed from here on out?

VALLIERE: Well, you are absolutely right. You have got a better export picture because of the weaker dollar. You've got very lean inventories, which suggest you have got to build new ones.

ANGLE: So as soon as somebody starts buying, they have to start producing them.

VALLIERE: That's exactly right. The consumer confidence is still pretty good. So I don't think the economy is rolling over. We're not falling off a cliff. I think what Wall Street is worried about is that we have gone from a scenario of having growth of 4 percent or better, they thought on Wall Street, to a scenario maybe 3 percent. Not bad. But the implication for earnings is not as positive as Wall Street was hoping for.

ANGLE: All right. Let's look at the unemployment rate, which is done from a separate survey, and we have a graphic here to show you those numbers. The Household Survey — and the other survey is a survey of businesses, but they also called households and when they called households, they found that jobs increased, people said, by 629,000.

VALLIERE: Yes

ANGLE: That prompted the unemployment rate to drop from 5.5 percent to — 5.6 percent to 5.5 percent. What is the difference between these two surveys?

VALLIERE: The White House is pointing out today that the news is not totally bleak. As you say, manufacturing jobs went up, the rate came down by a tenth, as you say. Hours worked went up. And especially this Household Survey that showed that maybe the self-employed, entrepreneurs are still very active.

It's a nice theory, but there's one big problem, Jim. And that is that Alan Greenspan doesn't buy it. And if Alan Greenspan doesn't buy it, most economists won't believe that this is a valid figure.

ANGLE: OK. Now, that clearly means, though that, there are a lot of people who are saying I may not be employed, by one of these firms you called, but I do have a job because I have a business on the side.

VALLIERE: Yes. And again, we're not talking about a dire environment. I just think, though, for Senator Kerry who is looking for some traction on this issue, he can say with some justification between now and Labor Day, until we get the next report, that the recovery may be fizzling. I don't think it is, but he can say that, and it's not totally unjustified.

ANGLE: Well, the Democrats clearly jumped on this today to say this is proof positive the president's economic policies are not working. Can you make that kind of judgment from a month or even two months of job growth figures?

VALLIERE: Probably not. In fact, you could make an argument, had we not had the tax cuts, things would have been much worse. I mean it's — you can still say that the stimulus we got helped get the economy back on its feet during the winter and spring. But we are in a soft patch. And what Wall Street told us with a very ugly sell off toward the end of the day is that this soft patch could persist for a while longer.

ANGLE: Now, one of the things that anybody can be forgiven for concluding in an election year is that the president has absolutely total control over the economy. Because every presidential candidate suggests that he would do this and the president who is in power is saying his policies contribute to it. How much power does the president really have over the economy?

VALLIERE: You know, a little secret here, very little in my opinion. I think that they can tinker around the edges, but we're probably going to have gridlock next year if Kerry wins. Maybe even gridlock if Bush wins. So what it really boils down to, in my opinion, in the next two, three months politically, is who is looking the most active? Who shows the most concern? Who feels your pain?

I think that the president needs to do more, frankly in this. Whether the Boston Brahman, John Kerry, can feel your pain remains to be seen. But I think which ever candidate shows the most empathy might win more points than proposing policies.

ANGLE: So this report today, is it fair to say, that it's has more political implications than economic ones.

VALLIERE: Well, a lot of political ones. But economically, it might mean — one other point I quickly make is that...

ANGLE: Very quickly.

VALLIERE: ...it might mean that the fed tightens one more time and then takes the fall off.

ANGLE: OK. That would be encouraging to the stock market obviously. All right.