Jobs stall, setting back recovery hopes
Jul 8, 2011, 7:31 a.m.
By Lucia Mutikani
WASHINGTON (Reuters) - U.S. jobs growth ground to a near halt in June, with employers hiring the fewest workers in nine months, frustrating hopes the economy would bounce back quickly from a slowdown in the first half of the year.
Nonfarm payrolls rose only 18,000, the weakest reading since September, the Labor Department said on Friday, well below economists' expectations for rise of at least 90,000.
The unemployment rate climbed to a six-month high of 9.2 percent from 9.1 percent in May even as jobseekers left the labor force in droves.
"The message on the economy is ongoing stagnation," said Pierre Ellis, senior economist at Decision economics in New York. "Income growth is marginal so there's no indication of momentum.
Stocks on Wall Street opened lower on the data, while U.S. Treasury debt prices rallied. The dollar was little changed against a basket of currencies.
The government revised April and May payrolls to show 44,000 fewer jobs created than previously reported.
The report shattered expectations the economy was starting to accelerate after a soft patch in the first half of the year.
It could prompt calls for the Federal Reserve to consider further action to help the economy, although officials have set a high bar after completing a $600 billion bond-buying program last week.
"This confirms our view that the Fed will continue to keep rates on hold into 2012 and if weak employment continues it will be pushed out even further," said Tom Porcelli, chief economist at RBC Capital Markets in New York.
Hopes were high that the economy was starting to find firmer ground as motor vehicle manufacturers ramped up production and gasoline prices descended from their lofty levels.
Economic activity in the first six months of the year was dampened by rising commodity prices and supply chain disruptions following Japan's devastating earthquake in March.
WHITE HOUSE HEADACHES
The data is a blow to the Obama administration, which has struggled to get the economy to create enough jobs to absorb the 14.1 million unemployed Americans. It could stiffen the resolve of Democrats to push for near-term stimulus as they seek a deal with Republicans to cut the U.S. budget deficit.
The economy is the top concern among voters and will feature prominently in President Barack Obama's bid for re-election next year.
So far, the economy has regained only a fraction of the more than 8 million jobs lost during the recession.
Republicans were quick to criticize the administration.
"Today's report is more evidence that the misguided 'stimulus' spending binge, excessive regulations, and an overwhelming national debt continue to hold back private-sector job creation in our country," House of Representatives Speaker John Boehner said in a statement.
The economy needs to create between 125,000 and 150,000 new jobs a month just to absorb new labor force entrants.
White House economic advisor Austan Goolsbee told Reuters Insider that the economy was not facing a double-dip scenario, but said the weak jobs number should be a wake up call for both Democrats and Republicans to stop bickering about policy.
"This is not a double-dip. This is a reflection and reiteration that the growth rate slowed at the beginning of this year and that clearly has an impact on job creation," he said.
The private sector added 57,000 jobs last month, accounting for all the jobs created, with government employment shrinking 39,000 because of fiscal problems at local and state governments.
Details of the report showed widespread weakness, though factory payrolls rebounded 6,000 after contracting in May for the first time in seven months, with the recovery reflecting a step-up in motor vehicle production.
Construction employment fell 9,000 last month after declining 4,000 in May. Government employment declined for an eighth straight month as municipalities and state governments continued to wield the ax to balance their budgets.
The report also showed the average workweek fell to 34.3 hours from 34.4 hours. Employers have been reluctant to extend hours because of the uncertainty surrounding the recovery.
Average hourly earnings slipped a penny, the first decline since November and more evidence that wage-driven inflation is not a risk. Over the past year, earnings have risen only 1.9 percent.
(Editing by Andrea Ricci)