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June job growth tepid, jobless rate drops

Posted on: Friday, 8 July 2005, 10:05 CDT

By Andrea Hopkins

WASHINGTON (Reuters) - U.S. employers added 146,000 jobs in June, below Wall Street forecasts, but the unemployment rate fell to its lowest point since September 2001 as few joined the labor force, a government report showed on Friday.

June's tepid employment growth fell short of analyst expectations for 188,500 new jobs.

But the decline in the unemployment rate to 5.0 percent was a nice surprise, since Wall Street had expected it to hold at 5.1 percent. The drop was mostly due to a paltry 1,000 increase in the work force, which includes those looking for work as well as those who have jobs.

The dollar climbed to session highs against major currencies after the report was released, while U.S. Treasury bond prices traded flat after an initial bounce.

"Jobs created were weaker than expected but the unemployment rate dropped. It's enough to keep the wolves at bay but not enough to get excited about," said Michael Jansen, currency strategist at National Australia Bank in New York.

The Labor Department revised up job growth in April and May to 292,000 and 104,000, respectively, boosting the two-month count by 44,000 payroll jobs.

Economists said the rise in hiring suggested an economy growing at a rate of about 3 percent -- strong enough to reassure the Federal Reserve that a spring "soft patch" had evaporated but not enough to spark inflation worries.

"It's very consistent with an economy that is growing at or just below trend. It does not change anything for the Fed -- they're going to raise rates again next month," said Steve Ricchiuto, chief U.S. economist at ABN AMRO in New York.

The Fed has raised short-term interest rates nine times since last June in a bid to head off inflation, and experts expect a tenth rate hike in August.

Factory payrolls shrank for the fourth straight month as auto assembly and parts plants cut back on production. Bloated inventories have prompted many automakers to slow production lines until demand can catch up. Some 96,000 manufacturing jobs have been lost since August 2004.

While 18,000 new workers were hired in the construction industry last month, most of June's employment growth came in the service sector. Professional and business services jobs rose 56,000, education and health services were up 38,000 and leisure and hospitality payrolls grew 19,000.

In a potentially troubling sign, the length of the average workweek was 33.7 hours, unchanged from May's downwardly revised length. The factory workweek was also unchanged at 40.4 hours, while overtime held at 4.4 hours.

Employers typically increase the length of the workweek before taking on new workers, so a lack of growth in that area can mean scant hiring ahead.

Average hourly earnings rose 3 cents to $16.06 and have risen 2.7 percent over the year.

A separate report by the Commerce Department showed inventories at U.S. wholesalers rose a scant 0.1 percent in May, below analyst forecasts, while sales were flat.

Wall Street analysts had expected wholesale inventories to gain 0.5 percent.

The Commerce Department said stocks of durable goods -- products meant to last three years or more -- rose 0.4 percent in May while nondurable inventories fell 0.3 percent. Wholesale sales were unchanged in the month.

(Additional reporting by Laura Macinnis)

Source: REUTERS

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