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Employers Cut Jobs for 6th Straight Month

Posted on: Thursday, 3 July 2008, 12:00 CDT

WASHINGTON _ Employers shed 62,000 jobs in June, the sixth consecutive month of job losses, and the steep jump in the unemployment rate in May wasn't a fluke, the government reported Thursday.

The unemployment rate in June held steady at 5.5 percent, according to the Labor Department's Bureau of Labor Statistics. That means that May's unusual half-point leap in the jobless rate wasn't an aberration as first thought.

"We had thought that the rate had temporarily overshot in May based on problems seasonally adjusting the summer inflow of students into the work force" Nigel Gault, the chief U.S. economist for forecaster Global Insight in Lexington, Mass., said in a research note to investors. "But the unemployment rate for young workers was little changed this month, suggesting that they are simply facing a much weaker labor market than in previous years,"

There were few surprises in the composition of the job losses. The manufacturing and retail sectors were leading losers, while government and health care continued to add jobs and offset the broader private-sector losses.

Although June's employment losses are the highest unrevised number since businesses began reducing payrolls in January, they remain below the number of job losses associated with economic recessions. Unemployment has been higher than 5 percent since March, but it remains under the levels historically associated with recession.

"Obviously we're disappointed. We don't like to see jobs lost," Commerce Secretary Carlos Gutierrez told McClatchy. "It is important, however, to put it in perspective. During the mild recession of 2001, we were losing 180,000 (jobs) per month. No one is insinuating that there is positive news here, (but) it's important to keep it in perspective."

The unemployment numbers were slightly worse than mainstream economists had forecast, but within a range that didn't panic the financial markets. More troubling for stocks was the European Central Bank's decision Thursday to hike interest rates for the first time in a year.

The central bank raised Europe's benchmark lending rate a quarter point to 4.25 percent in a bid to quash consumer inflation, which has reached 4 percent there. Because interest rates bolster a national currency, the European euro immediately gained ground on the U.S. dollar.

That's bad news for American motorists. Global investors are pouring money into contracts for future deliveries of oil as a hedge against the weakening dollar. The price for crude oil traded on the New York Mercantile Exchange immediately leapt above a record $145 a barrel soon after the European Central Bank decision, but it fell back to around $143 in early trading on the positive news that the bank didn't signal further rate hikes ahead.

The European move on rates puts pressure on the U.S. Federal Reserve to follow suit when its policymaking Federal Open Market Committee next meets, on Aug. 5.

But the Fed is in a no-win position. Consumer inflation is running at a year-over-year pace of 4.2 percent through May, and high energy and food prices are socking it to consumers. The Fed's benchmark lending rate is already at 2 percent, and in normal times the threat of inflation would be enough to lead policymakers to raise rates preventively.

There's nothing normal about today's U.S. economy, however. The housing market is in its worst slump in modern times, the banking sector faces a credit crisis that has dried up all but the most essential lending and carmakers such as General Motors are viewed as being on the verge of bankruptcy. Any move to raise interest rates, especially with a presidential election just months away, threatens to tip the slow-growing economy into recession.

"The Fed remains in a very difficult spot. Inflation is continuing to climb, but the outlook for future growth is darkening at the same time," Gault wrote. "We believe that the economy is too fragile for a rate hike before 2009."

Fed Chairman Ben Bernanke has indicated that he thinks the economic slowdown is enough to keep inflation in check provided that high energy prices eventually fall.

Bernanke got some good news in Thursday's jobs numbers. Hourly wages remain stable, and while that isn't great news for workers facing higher food and gasoline costs, it means that there's no sign of a wage push in which wages chase rising prices, triggering an upward inflationary spiral.

Presidential candidates Barack Obama and John McCain seized on Thursday's numbers to tout their economic platforms.

"To get our economy back on track, we must enact a jobs-first economic plan that supports job creation, provide immediate tax relief for families, enact a plan to help those facing foreclosure, lower health-care costs, invest in innovation, move toward strategic energy independence and open more foreign markets to our goods," McCain said in a statement.

Obama used a similar statement to pin the job losses on the Bush administration and suggest that McCain would offer the same policies.

"Our economy has now shed 438,000 jobs over the past six months, while workers' wages fail to keep pace with the skyrocketing cost of gas, groceries and health care," he said. "The American people are paying the price for the failed economic policies of the past eight years, and we can't afford four more years of more of the same."

___

The Labor Department report: http://www.bls.gov/news.release/empsit.nr0.htm  

To ask a question about this story or any economic question, go to McClatchy's economy Q&A: http://tinyurl.com/46eam

Source: McClatchy Washington Bureau

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