The economy is likely to keep stumbling at least through the rest of the year, analysts agreed Thursday, after a disappointing government report showed that payroll jobs fell by 62,000 in June, the sixth straight month of job losses.
“More job losses are coming through the remainder of the year. The economy has lost just over 400,000 jobs since the start of the year and will lose another 400,000 by year's end,” said Mark Zandi, chief economist for forecaster Moody's Economy.com. “Behind this pessimism are the broad-based job declines across most industries and regions of the country.”
The Labor Department said Thursday that the unemployment rate held steady at 5.5 percent in June despite the 62,000 lost payroll jobs. Still, that confirmed that May's unusual half-point jump 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.”
The manufacturing, construction, financial and retail sectors led the job losers, while government and health care continued to add jobs. This is a continuing pattern and a chief reason that forecasters see more job losses ahead.
“Job losses are occurring in over half the nation's states, with large declines in big states such as California, Florida, Michigan and Ohio,” Zandi said. “There is nothing in today's jobs report that suggests the job market will stabilize anytime soon.”
Although June's employment losses were slightly worse than expected, they were below the number associated with economic recessions.
“Obviously, we're disappointed. We don't like to see jobs lost,” Commerce Secretary Carlos Gutierrez told McClatchy Newspapers. “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.”
Gutierrez expects a rebound later this year.
“The consensus out there continues to be as we head into the back half (of 2008), the back half will be less difficult than the first half,” he said, adding that government rebate checks are helping to boost consumption. “The whole idea with the stimulus package is to buy some time, to serve as a bridge.”
Wall Street shrugged off the bad news. In a trading day shortened by the Fourth of July holiday, the Dow Jones industrial average closed up 73.03 points to 11,288.54. The S&P 500 finished up 1.38 to 1262.90 and the Nasdaq dipped 6.08 points to 2245.38.
Investors also were surprisingly unmoved by Thursday's announcement of a quarter-point interest rate hike by the European Central Bank, the first such hike in a year. The central bank raised Europe's benchmark lending rate to 4.25 percent in a bid to quash consumer inflation, which has reached 4 percent there. The euro immediately gained ground on the U.S. dollar, a trend that tends to push up global oil prices.
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 European move adds pressure on the Federal Reserve to raise short-term lending rates when its policymaking group next meets Aug. 5.
U.S. consumer inflation is running at a year-over-year pace of 4.2 percent through May, driven up by rising energy and food prices. The Fed's benchmark lending rate is at a low 2 percent. In normal times, rising inflation triggers preventive hikes in interest rates.
However, there's nothing normal about today's U.S. economy. The housing market is in its worst slump in modern times, the banking sector is enduring a credit crisis that's dried up all but the safest lending and even General Motors appears on the verge of bankruptcy. An interest-rate hike now could tip the sluggish 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 will keep inflation in check — if energy prices eventually fall.
Bernanke got some good news from Thursday's job numbers: Hourly wages remained stable. While that's not great news for consumers facing higher food and gasoline costs, it means there's no sign yet of a surge in wages chasing prices, which would trigger an upward inflationary spiral.