Job Losses Accelerated in June

WSJ.com
By BRIAN BLACKSTONE

WASHINGTON -- U.S. payrolls tumbled by an unexpectedly large amount last month on widespread declines across manufacturing, construction and professional services, a grim reminder that the path to economic recovery will be bumpy.

The unemployment rate, meanwhile, continued to creep toward double digits, rising to its highest level in over 25 years.

Americans lost jobs at a faster pace in June, according to the latest unemployment data. Leo Tilman, president of LM Tilman & Co., talks to Kelsey Hubbard about today's report and what we might expect from a U.S. recovery. (July 2)

In a separate report, the number of laid-off workers filing new claims for state unemployment benefits fell twice as much as expected last week as the number of people collecting benefits for more than a week also declined, suggesting some improvement in a still strained labor market.

Nonfarm payrolls declined 467,000 in June, the U.S. Labor Department said Thursday, a considerably greater decline than the 350,000 economists in a Dow Jones Newswires survey had expected.

Though monthly job losses have tapered off from their peaks of around 700,000 at the start of the year, the economy has still lost 6.5 million jobs since the recession started in December 2007.

The unemployment rate, calculated using a survey of households as opposed to companies, increased 0.1 percentage point to 9.5%, the highest level since August 1983.

Many Wall Street economists expect that rate to top 10% soon. Not only does the economy have to stop losing jobs before the jobless rate stabilizes, it actually has to add payrolls at a modest rate just to keep up with new entrants into the labor force.

"Unemployment rates, in my judgment, are likely to remain higher and linger longer than in recent recessions," Federal Reserve Governor Kevin Warsh said last month, adding that "jobless recovery" may become "a familiar and vexing refrain."

The Fed last week held the target fed funds rate for interbank lending near zero and repeated its pledge to keep rates "exceptionally low...for an extended period." San Francisco Fed President Janet Yellen affirmed that point Tuesday, saying the fed funds rate could stay near zero for some time.

According to Thursday's report, when marginally attached and involuntary part-time workers are included, the rate of unemployed or underemployed workers hit 16.5% last month, up slightly from May.

The employment report is a sober reminder of the headwinds the U.S. faces even as other data suggest the recession may be nearing an end. The Institute for Supply Management manufacturing index increased in June from May, and though its level of 44.8 still signals a slight contraction in manufacturing, it is consistent with slight growth in the overall economy.

After plunging at rates near 6% at the end of 2008 and early 2009, at annual rates, economists think gross domestic product only fell around 1% or 2% in the second quarter, setting the stage for a resumption of tepid growth starting as soon as the current quarter.

Still, a jolt of consumption-driven adrenaline seems unlikely. Average hourly earnings were flat last month at $18.53. That was up just 2.7% from one year ago, a sign that inflation isn't a risk for the Fed. However, stagnant wages could also weigh on consumer spending, especially with gasoline prices on the rise.

According to Thursday's report, hiring last month in manufacturing fell 136,000, bringing the total since the recession began to almost two million. Automobile employment accounted for 27,000 of that decline. Construction employment, meanwhile, was down 79,000.

Employment in the service sector -- the main source of U.S. jobs -- fell 244,000. Business and professional services companies shed 118,000 jobs, and financial-sector payrolls were down 27,000.

Retail trade cut 21,000 jobs and leisure and hospitality employment fell 18,000, reflecting weakness in consumer spending.

Temporary employment -- which economists consider a leading indicator -- fell by 37,600 last month. In May, that sector posted its best performance in many months, fueling some hope that the labor market was finding its footing.

Continuing a trend throughout the recession, education and health care added jobs last month. Those labor-intensive sectors, particularly health care, are shielded somewhat from trends in the overall economy.

The government shed 52,000, largely the result of layoffs of workers hired temporarily to prepare for the 2010 Census.

The average workweek was down 0.1 hour at 33 hours, a record low. A separate index of aggregate weekly hours fell 0.8 percentage point to 99.

Weekly Jobless Claims Decline

Initial claims for jobless benefits dropped by 16,000 to a seasonally adjusted 614,000 in the week ended June 27, the Labor Department said in a weekly report Thursday. Economists surveyed by Dow Jones Newswires had expected claims would fall by 8,000.

The tally of continuing claims, those drawn by workers collecting benefits for more than one week in the week ended June 20 fell 53,000 to 6,702,000.

The four-week average of new claims, which aims to smooth volatility in the data, declined 2,750 to 615,250. The four-week average of continuing claims dropped 13,750 to 6,751,500.

There was no impact from special factors and little influence on the numbers by schools closing for summer, a labor department analyst said.

The unemployment rate for workers with unemployment insurance crept downward 0.1 percentage point to 5.0%.

Not adjusted to reflect seasonal fluctuations, California reported the largest jump in new claims -- 14,570 -- during the June 20 week due to an increase in layoffs in service sector.

Missouri reported the largest decrease due to fewer layoffs in the construction, service, transportation and warehousing sectors.

Factory Orders Rose in May

U.S. factory orders rose a second straight time in May and a barometer of capital spending by businesses surged, according to data supporting other signs manufacturing is improving.

Orders for manufactured goods increased 1.2%, the Commerce Department said Thursday. That was in line with Wall Street expectations.

April orders increased 0.5%, revised down from a previously reported 0.7% rise.

An indicator of capital spending by businesses surged in May. Non-defense capital goods orders excluding aircraft increased 4.7% after falling 3.5% in April.

Demand for durable goods rose an unrevised l.8%. Durables are expensive goods made to last at least three years, such as cars. Durables rose 1.4% in April.

Non-durable goods factory orders increased 0.7%, after sliding by 0.2% in April.

A sign of future factory demand fell an eighth straight month. But the rate of decrease was much smaller than prior months. Unfilled orders decreased 0.2% in May, after falling 1.1% in April and 1.7% in March.

A report Wednesday showed the U.S. manufacturing sector contracted in June but the rate of decline slowed again. The private research group Institute for Supply Management's index of manufacturing activity moved to 44.8 from 42.8 in May. Readings under 50 suggest contraction. The report showed inventories continued to shrink at a rapid rate and customer inventories were reported as too low -- signs that production might move higher this summer. U.S. industrial output has fallen 16 times in the latest 17 months, according to Federal Reserve data.

Thursday's data said manufacturers' inventories in May dropped 0.6%, after falling 1.2% in April and 1.2% in March.

Orders for factory goods made in the transportation sector increased 3.8%, after a 6.3% increase in April. Non-military aircraft and parts orders rose 68.7%. Defense aircraft and parts orders decreased 2.3%. Ships and boats fell 10.4%. Orders for motor vehicle bodies and parts fell 4.6%, after rising 1.0% in April.

Excluding transportation orders, overall factory orders increased 0.8%, after sliding by 0.2% in April.

Capital goods orders rose 9.5%, after rising 1.3% in April.

Defense capital-goods orders climbed 7.4%, after rising 28.8% in April. Without defense orders, overall factory orders rose 1.0%, after falling 0.1% in April. Defense capital goods industries include, among others, communications equipment, aircraft and missiles.

Demand for all non-defense capital goods -- business equipment meant to last 10 years or more -- rose 10.0%, after retreating 3.5% in April.

Consumer-goods orders decreased 0.2%, with consumer durable goods orders dropping 7.0% and consumer non-durables rose 1.2%.

Orders increased in May by 11.5% for machinery, 0.1% for primary metals, and 2.5% for computers and electronic products. Fabricated metals fell 2.4% and electrical equipment dropped 0.5%.

The report showed May factory shipments fell 0.9%.