U.S. Economy: Payroll Losses Slow, Unemployment Rate Declines
By Shobhana Chandra
Aug. 7 (Bloomberg) — The pace of U.S. job losses slowed more than forecast last month and the unemployment rate dropped for the first time in more than a year, the clearest signs yet the worst slump since the Great Depression may be ending.
Payrolls fell by 247,000, after a 443,000 loss in June, the Labor Department said today in Washington. The jobless rate unexpectedly dropped to 9.4 percent from 9.5 percent.
The figures sent stock indexes soaring to their highs for the year and 10-year Treasuries heading for the worst week since 2003. At the same time, the White House warned the jobless rate is still likely to reach 10 percent, and with companies from Boeing Co. to Verizon Communications Inc. continuing to cut costs, any rebound in hiring may not come until 2010.
“The American consumer is by no means out of the woods, but we are moving in the right direction,” said Richard DeKaser, chief economist at Woodley Park Research in Washington, the only economist to correctly forecast the payroll and unemployment numbers. “We will see moderate growth in the second half and more of a pickup in 2010.”
The Standard & Poor’s 500 Stock Index rose 1.7 percent to 1,013.65 at 11:15 a.m. in New York. Yields on benchmark 10-year notes rose to 3.84 percent from 3.75 percent late yesterday. The dollar climbed 0.9 percent to $1.4220 per euro and 2 percent to 97.38 yen.
“We are pleased, but not satisfied that the rate of that job loss is declining,” said Robert Gibbs, the White House press secretary. “Without seeing some genuine, positive, sustained job growth, you’ll likely to see the rate continue to go up,” he added.
Pace of Declines
Revisions added 43,000 to payroll figures previously reported for June and May. The average losses of 331,000 in the past three months are less than half the pace of decline in the first quarter of this year.
The latest numbers brought total jobs lost since the recession began in December 2007 to about 6.7 million, the biggest decline in any post-World War II recession.
“We’ve got a long way to go before we’ve got a normal recovery,” James Glassman, senior U.S. economist at JPMorgan Chase & Co. in New York, said today in an interview on Bloomberg Radio.
Payrolls were forecast to drop 325,000 after the 467,000 decline initially reported for June, according to the median of 82 estimates in a Bloomberg News survey. Predictions ranged from decreases of 150,000 to 460,000. Job losses peaked at 741,000 in January, the most since 1949.
Economists’ Forecasts
The jobless rate was projected to rise to 9.6 percent, and forecasts ranged from 9.2 percent to 9.8 percent. A separate Bloomberg survey last month showed the rate may exceed 10 percent by early next year and average 9.8 percent for all of 2010.
Along with projected further increases in unemployment, stagnant wages and falling home values mean a lack of consumer spending will likely curb an economic recovery, analysts say.
Today’s report showed factory payrolls fell 52,000, the fewest in a year, after decreasing 131,000 in the prior month. Economists forecast a drop of 100,000.
That decline came even as 28,200 jobs were created in the automobile industry. The improvement reflected the return of workers at General Motors Co. and Chrysler Group LLC, both of which have exited bankruptcy.
GM Cuts
GM may have to cut more U.S. hourly jobs after an offer of buyouts and early retirements fell about 7,500 workers short of the reorganized automaker’s target.
Payrolls at builders fell 76,000 after decreasing 86,000. Financial firms decreased payrolls by 13,000.
Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 119,000 workers after losing 220,000 the month before. Retail payrolls decreased by 44,100.
Government payrolls increased by 7,000 after falling 48,000 the prior month.
Today’s report also showed the average work week expanded to 33.1 hours in July from 33 hours in the prior month. Average weekly hours worked by production workers increased to 39.8 hours from 39.5 hours, while overtime held at 2.9 hours for a second month. That brought the average weekly earnings up to $614.34 from $611.49.
Workers’ average hourly wages rose 3 cents, or 0.2 percent, to $18.56 from the prior month. Hourly earnings were 2.5 percent higher than July 2008. Economists surveyed by Bloomberg had forecast a 0.1 percent increase from the prior month and a 2.5 percent gain for the 12-month period.
Consumer Spending
Even so, economists predict consumer spending, which accounts for 70 percent of the economy, will be slow to gain speed. Wages and salaries fell 4.7 percent in the 12 months through June, the biggest drop since records began in 1960, according to Commerce Department data issued this week.
Companies like Verizon and Boeing are still looking to trim expenses through cutbacks in staff. New York-based telephone carrier Verizon last month said it plans to slash more than 8,000 jobs in the second half of the year.
Chicago-based Boeing, which is planning to eliminate about 10,000 workers, or 6 percent of its labor force, has agreed to allow some machinists to volunteer for a “layoff with benefits” to help mitigate job cuts, the International Association of Machinists and Aerospace Workers said on July 28.
Earnings Pressure
Emerson Electric Co., a maker of industrial equipment, will cut an additional 5,000 to 6,000 positions in the next few quarters, after it posted its third straight drop in quarterly earnings, the longest stretch since 2002. The St. Louis-based company has already eliminated 20,000 jobs.
“Emerson is still seeing very difficult and challenging times around the world,” Chief Executive Officer David Farr said on a conference call on Aug. 4.
Administration officials including Lawrence Summers, director of the White House National Economic Council, predict most new jobs under President Barack Obama’s stimulus program will come only in 2010. Less than 10 percent of the $787 billion plan goes to job creation this year, and the government still expects to save or create at least 3 million jobs, Summers said in an NBC television interview on Aug. 2.
The unemployment rate may not peak until the second half of 2010, Treasury Secretary Timothy Geithner said on ABC last week, even as the economy shows signs of improvement. Another extension in unemployment benefits “is something that the administration and Congress are going to look very carefully at as we get closer to the end of this year,” Geithner said.
To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
Last Updated: August 7, 2009 11:34 EDT
taken from bloomberg.com 8-7-09
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