U.S. Payrolls Drop 51,000 Jobs

The U.S. unemployment rate rose to the highest level in more than four years as employers cut jobs again in July, increasing the threat of a deeper economic slowdown.

Payrolls fell by 51,000, less than forecast, after a decline of 51,000 in June, the Labor Department said today in Washington. The jobless rate rose to 5.7 percent, from 5.5 percent the prior month. As recently as April, the jobless rate was 5 percent.

The last time the unemployment rate climbed so much in four months was in 2001, when the U.S. was last in a recession. Job losses have combined with decreasing property values, stricter lending rules and near-record energy prices to send consumer confidence levels close to the weakest in 16 years in July.

Cutbacks at UAL Corp. and Starbucks Corp. signal firings are spreading beyond builders and manufacturers as raw-materials costs soar. General Motors Corp., which today announced a second- quarter loss of $15.5 billion, may eliminate about 5,000 U.S. jobs by year-end, people familiar with the plan said this week.

Today's report reinforces the case for the Federal Reserve to hold off on any interest-rate increase until next year, economists said.

Treasuries dropped and stock-index futures advanced after the job losses were less than projected. Yields on benchmark 10- year notes were at 4 percent at 9:20 a.m. in New York, from 3.95 percent late yesterday. Futures on the Standard & Poor's 500 Stock Index gained 0.3 percent to 1,271.

The employment figures may reinforce concern that the economy was in a recession. The July cuts bring the total drop in payrolls so far this year to 463,000. Revisions added 26,000 to payroll figures previously reported for May and June.

The National Bureau of Economic Research, the official arbiter of U.S. contractions, tracks payrolls, sales, incomes, production and gross domestic product in making the recession call. The group defines downturns as a ``significant'' decrease in activity over a sustained period of time, and usually takes six to 18 months to make a determination.

The economy shrank at the end of 2007 and grew less than forecast in this year's second quarter, figures from the Commerce Department showed yesterday. Some economists said this indicated the U.S. slipped into a recession late last year. Investors pared bets the Federal Reserve will raise interest rates in 2008.

More Americans filed initial claims for unemployment benefits last week than at any time in over five years, Labor reported yesterday. Consumer confidence surveys have indicated that Americans, growing more pessimistic about job prospects, may trim spending.

Factory payrolls fell 35,000 after declining by the same amount in June. Economists had forecast a drop of 40,000. The decrease included a drop of 3,000 jobs in auto manufacturing and parts industries.

July announcements at airlines included 7,000 cuts at UAL's United Airlines, and 6,840 at American Airlines parent AMR Corp.

Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 5,000 workers, the first decline since March. Retail payrolls decreased by 16,500 after a drop of 6,300.

Government jobs increased by 25,000, the 12th month of gains in public payrolls, after an increase of 43,000.

The average work week shrank to 33.6 hours from 33.7 hours. Average weekly hours worked by production workers were unchanged at 41, and overtime was also unchanged at 3.8 hours. That brought the average weekly earnings up by 22 cents to $606.82 in July.

Workers' average hourly wages rose 6 cents, or 0.3 percent, to $18.06, matching economists' forecasts.


U.S. Payrolls Drop 51,000 Jobs

TradingEconomics.com, Bloomberg
8/1/2008 6:38:22 AM