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Economy Extends Job Loss Streak

Jul 04, 2008

People wait in line to enter the Diversity Job Fair at the Affinia Hotel June 10, 2008 in New York City. The national unemployment rate rose to 5.5 percent in May, up from 5 percent in April. (Mario Tama/Getty Images)
People wait in line to enter the Diversity Job Fair at the Affinia Hotel June 10, 2008 in New York City. The national unemployment rate rose to 5.5 percent in May, up from 5 percent in April. (Mario Tama/Getty Images)

WASHINGTON—U.S. employers cut workers for a sixth straight month in June for the longest such streak since 2002 and the country's vast service sector unexpectedly contracted, underscoring the economy's frailty.

The Labor Department said on Thursday that 62,000 nonfarm jobs were shed last month, bringing the number of jobs lost this 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.

A separate report showed new applications for jobless benefits hurdling to 404,000 last week, a level associated with past recessions and that suggests the labor market continued to weaken.

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.

"An unpleasant cocktail," said Richard Iley, senior economist at BNP Paribas in New York, summing up the data.

Shares were buffeted -- rallying on initial relief that the payrolls report was not even worse, then fading as the services survey dented enthusiasm, but ending higher as record oil prices above $145 per barrel lifted energy stocks. The Dow Jones industrial average closed up 73 points at 11,288.

Concerns about the service sector also provided a boost to short-dated U.S. government bonds, which benefit from signs of economic weakness. But longer-maturity debt prices were hurt by worries over inflation down the road. The dollar gained.

Cries for Help

While the number of jobs lost in June was not far from economists' expectations, details in the report gave the data a weaker-than-expected tone.

Downward revisions to both May and April's jobs count took the combined losses for those two months to 129,000, compared with an early estimate of 77,000.

In addition, the creation of 29,000 government jobs helped support payrolls. Private-sector employment actually dropped by 91,000.

"We're in an economy that is struggling. It's not any kind of nasty, nasty recession. It's consistent with what could be characterized as a very mild recession, but it's a recession nonetheless," said Nariman Behravesh, chief economist at Global Insight in Lexington, Massachusetts.

Concern over the economy is high in this election year and Democrats said the weak readings showed the need for additional emergency government spending to buttress a $152 billion-plus stimulus package that they fear will fade over the summer.

Over $85 billion in government stimulus checks have been delivered to U.S. households, leaving a cash injection of about $25 billion that is expected to reach consumers this month. In addition, businesses have been granted temporary tax breaks.

The Federal Reserve also has acted aggressively to buffer the economy from the sharp housing downturn and related strains in credit markets. However, last week it halted a muscular interest-rate cutting campaign, holding overnight U.S. rates at 2 percent and warning that inflation risks had risen.

The jobs report showed average hourly earnings, closely watched by the Fed as it monitors price pressures, edged up six cents, or 0.3 percent in June to $18.01. Over the past 12 months, earnings have risen just 3.4 percent, the lowest reading since January 2006.

More Pain Ahead

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 43,00 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 housing woes.

Overall service-sector employment grew by 7,000, but this was way down from the triple-digit job growth seen earlier this year, a sign that employment weakness was spreading.

A separate service sector survey 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 hit a record low and the prices index was the highest since it was launched in 1997.

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