By Alister Bull | 3 July 2008
WASHINGTON (Reuters)— U.S. employers cut workers for a sixth straight month in June for the longest such streak since 2002 and vast service sector unexpectedly contracted, underscoring the economy's frailty. The Labor Department said on Thursday that 62,000 non-farm jobs were lost last month, bringing jobs shed for the year to 438,000 as a housing market crash chilled growth. The unemployment rate, which shot up sharply in May, held steady at 5.5 percent [[the hope/expectation had been that it would (at least briefly) drop to 5.4%: normxxx]].
A separate report showed new applications for jobless benefits hurtling to 404,000 last week, a level associated with past recessions. It also suggested the labor market would continue to weaken. "It shows that the labor market still is very soft. We're not seeing dramatic job cuts, but clearly companies are trying to hold the line on costs," said Gary Thayer, senior economist at Wachovia Securities in St. Louis.
A separate survey showed service companies such as airlines and restaurants that make up the bulk of the economy are being pinched by soaring costs and weakening demand and have responded by slashing staff. Concern over the economy and jobs will be a major factor in the country's November presidential election and both candidates' campaigns were quick to issue statements: Presumptive Democratic presidential candidate, Sen. Barack Obama, said "the American people are paying the price for the failed economic policies of the past eight years." Presumptive Republican nominee, Sen. John McCain, urged "our focus must be clear: enact policies to create jobs today."
Shares initially rallied on relief that the employment report was not even worse, although the initial enthusiasm was dented by the weak service sector survey report. Concerns about the service sector provided a boost to U.S. government bonds, which benefit from signs of economic weakness. The dollar gained. Analysts polled by Reuters had expected the unemployment rate to edge down to 5.4 percent and had expected the economy to shed 60,000 jobs.
The weak tone of the report was buttressed by downward revisions to both May and April's employment count that took their combined job losses to 129,000, compared with an early estimate of 77,000 jobs lost. In June, the creation of 29,000 government jobs helped support payrolls. Private-sector employment dropped by 91,000. "We're still in the netherland world between growth and a genuine recession, but there still are downside risks," said Bruce Kasman, chief economist at JPMorgan in a client call.
Tame Wages
Average hourly earnings, closely watched by the Federal Reserve as it monitors price pressures to make sure they do not creep into higher wages, edged up six cents, or 0.3 percent in June to $18.01. However, over the past 12 months earnings have risen just 3.4 percent, the lowest reading since January 2006. The Fed last week halted an aggressive interest-rate cutting campaign, holding overnight U.S. rates at 2 percent and warning that inflation risks had risen amid soaring energy and food prices. The central bank had been cutting rates to shield growth from a collapsing housing market.
The six-month streak of job losses was the longest consecutive period of shrinking payrolls since employment fell without respite from March 2001 until May 2002, a period that corresponds to the last U.S. recession and the beginning of a jobless recovery. There were 43,000 jobs lost in construction in June as the housing slowdown continued to bite, while manufacturing shed 33,000 jobs. Both of these sectors have lost jobs in every month over the past year.
Jobs in the professional services sector declined by 51,000 as the financial services and real estate industries continued to suffer from a slumping stock market and the country's housing market woes. Service sector employment grew by 7,000 but this was way down from the triple-digit job growth seen earlier this year in a sign that employment weakness was spreading. A service sector survey later on Thursday confirmed this impression. The Institute for Supply Management's non-manufacturing index unexpectedly dropped to 48.2 for June versus 51.7 in May. A reading below 50 signals contraction.
The survey's employment reading fell to a record low while the prices index hit the highest level since the survey was launched in 1997. The separate report on jobless claims showed initial filings jumped by 16,000 last week to 404,000. The four-week average of new jobless claims, a better gauge of underlying labor trends because it irons out week-to-week volatility, increased for the fourth straight week to 390,500, the highest reading since October 2005 in the aftermath of Hurricane Katrina.
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Normxxx
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