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Private Sector Adds 114,000 Jobs, But Layoffs On the Rise

Private sector payrolls rose at a faster pace than expected in July, but a surprising increase in layoffs in the sector helped push the number of announced U.S. jobs cuts to a 16-month high, separate reports showed Wednesday.

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The data come ahead of Friday's closely watched July jobs report, which is expected to show 85,000 nonfarm payrolls and a 9.2 percent unemployment rate.

It is further bad news for the U.S., which teetered on the brink of defaulting on its debt repayments before finally rubberstamping a deal to raise the debt ceilingand cut public spending by more than $1 trillion.

The pace of private sector job growth slowed in July with employers adding 114,000 positions, a report by a payrolls processor showed.

Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 100,000 jobs. June's private payrolls were revised down to an increase of 145,000 from the previously reported 157,000.

The report is jointly developed with Macroeconomic Advisers. Economists often refer to the report to fine-tune their expectations for the payrolls numbers, though it is not always accurate in predicting the outcome.

"This only adds fuel to the argument that the slowdown story is here in the U.S. I am fairly confident that people are going to be scaling back their estimates for nonfarm payrolls on Friday,'' said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York. "While it is a good thing that small and medium-sized companies are adding payrolls, there is no doubt that the pace has slowed.''

U.S. stock index futures added to gains immediately following the report, while Treasury prices slipped and the dollar rose against the Swiss franc.

Layoff Wave Lifts Job Cuts to 16-Month High

A separate report showed the number of planned layoffs at U.S. firms rose to a 16-month high in July, as sectors which had been seeing fairly few layoffs unexpectedly bled jobs.

Employers announced 66,414 planned job cuts last month, up 60.3 percent from 41,432 in June, according to a report from consultants Challenger, Gray & Christmas.

The job cuts were up 60 percent from June, and 59 percent higher than the 41,676 layoffs recorded in July 2010. Its was the largest monthly total since March 2010, and the first month this year that the government was not the biggest job cutter.

"What may be most worrisome about the July surge is that the heaviest layoffs occurred in industries that, until now, have enjoyed relatively low job-cut levels," John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement.

Layoffs in the pharmaceutical and retail sectors overtook nonprofit and government job cuts last month, accounting for 20.32 percent and 16.93 percent of announcements, respectively.

The cuts were the result of large layoffs by a handful of private-sector employers, including Merck, Borders, Cisco Systems , Lockheed Martin and Boston Scientific .

These five companies alone accounted for 38,100 or 57 percent of the total job cuts in July.

The pace of job cuts picked up steam in recent months. At the end of March, year-to-date job cuts were 28 percent lower than the same period a year ago. The gap at the end of July has now narrowed to 8 percent lower than the same time in 2010, with a total of 312,220 cuts so far this year.

"July marks the third consecutive increase we have seen in monthly job-cut announcements, which certainly seems to provide additional evidence that the recovery has stalled," said John A. Challenger, chief executive officer of Challenger, Gray & Christmas, in a statement.

"What may be most worrisome about the July surge is that the heaviest layoffs occurred in industries that, until now, have enjoyed relatively low job-cut levels, including pharmaceuticals, computer and retail.”

The pharmaceutical sector suffered the most job cuts in July, with 13,493 jobs lost, most of them from a long-term cutting plan at Merck.

Similarly, retail job cuts were dominated by one employer, book store chain Borders, which went into liquidation with the loss of more than 10,000 jobs after a turnaround plan failed.

“It has been a couple of years since we have seen this level of private sector job cuts coming in a single month," said Challenger.

"The spurt of layoff announcements in July also stood out because they came from major employers in bellwether industries, all within a span of a few days. A casual observer certainly might conclude that the wheels just fell off the recovery wagon.”

Challenger warned that Wall Street may be hit in coming months by a number of banks cutting their workforces, including Goldman Sachs , HSBC , UBS and Credit Suisse.

"Weakness in the financial sector does not bode well for the rest of the economy. Nor does weakness in the manufacturing sector, which is reporting some of the slowest activity in months,” said Challenger.

The most recent Institute of Supply Management data showed that its manufacturing index read 50.9 in July, barely above the 50 mark that separates expansion from contraction, and new orders contracted for the first time in two years.

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