Labor Market Remains Weak as Payrolls Shrink
U.S. employers cut workers from their payrolls for the sixth straight month in June for the longest losing employment streak since 2002, government data on Thursday showed.
A separate report showed new applications for jobless benefits hurdling to 404,000, suggesting further weakness ahead for employment.
Another survey reported 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.
U.S. stock futures rallied on the news, while prices on U.S. government debt retreated as investors shifted their attention toward the equities market.
"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.
The Labor Department said the unemployment rate held steady at 5.5 percent in June and 62,000 jobs were lost from nonfarm payrolls, bringing jobs shed for the year so far to 438,000 as housing market woes chilled growth.
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."
The presumptive Republican nominee, Sen. John McCain, urged "our focus must be clear: enact policies to create jobs today."
Analysts polled by Reuters had expected the unemployment rate to edge down to 5.4 percent. Payrolls were forecast to shed 60,000 jobs in June versus a 62,000 loss in May.
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.
Both May and April's count were revised lower, taking their combined job losses to 129,000, compared to an early estimate of 77,000 jobs lost.
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.
This took the year-on-year gain in average hourly earnings to 3.4 percent, the lowest reading since January 2006.
The Fed last week halted an aggressive interest rate cutting campaign, holding 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.
"It does show that the Fed has to hold policy steady for now. We've now seen job cuts all year long and that suggests that raising interest rates now would probably hurt the economy significantly," said Thayer.
June's decline was also the longest consecutive monthly shrinkage in payrolls since the collapse of the technology stock bubble, when they fell from March 2001 until May 2002 without respite as the economy went through a mild recession.
There were 43,00 job losses 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.
Providers of professional services lost 51,000 jobs as the financial services and real estate industries continued to suffer 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.
Flooding in the Midwest had no impact on June's national employment report, the Labor Department said, holding out the possibility of additional pressure on the jobs market in the coming months as flood-related job losses get counted.
A separate report from the labor department showed that U.S. workers filing new claims for jobless benefits jumped 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.