A job seeker picks up a copy of the Washington Job Guide at a job fair in Washington, D.C.JASON REED
U.S. private employers added fewer workers to their payrolls in July than expected, and hiring in June was much weaker than had been thought, a blow to an economic recovery that is failing to gain traction.
The dismal news on jobs poses a challenge to Democrats hoping to retain their congressional majorities in November elections, as well as to officials at the Federal Reserve who are debating whether more needs to be done to foster growth.
Overall non-farm payrolls fell 131,000 last month, the Labor Department said on Friday, as temporary government jobs to conduct the decennial census dropped by 143,000.
Private employment, a better gauge of labor market health, rose a modest 71,000 after gaining just 31,000 in June.
The government revised payrolls for May and June to show 97,000 fewer jobs than previously reported.
'THE BIG STALL'
Analysts polled by Reuters had forecast overall employment falling 65,000 in July and private-sector hiring increasing 90,000.
"We are in the big stall," said Steve Blitz, a senior economist at Majestic Research in New York. "There's no double dip, there's no next recession coming."
"The risk is, at this kind of a growth rate, that you raise the spectre of deflation," he said.
U.S. stocks fell on the report, while Treasury debt prices erased earlier losses and the U.S. dollar fell against the euro and the yen.
The market impact was muted, however, and analysts noted there were some positive elements in the data, including a longer workweek and a rise in hourly earnings.
The unemployment rate held steady at 9.5 per cent in July as discouraged workers gave up the search for jobs and were no longer counted as being in the labor force. Economists had expected a rise to 9.6 per cent.
POLITICS AND THE FED
Job growth has taken a step back after fairly strong gains between February and April, putting in jeopardy the economy's recovery from its worst downturn since the 1930s.
"There will likely be more bumps in the road ahead as the economy recovers," White House adviser Christina Romer said in a statement as she called on Congress to move forward with legislation aimed at increasing credit for small businesses and providing incentives for clean energy investments.
Growing unease over the health of the economy is weighing on President Barack Obama's popularity and hurting the Democratic Party's prospects of keeping control of Congress in the mid-term elections.
"Welcome to the reality of President Obama's broken promises, out-of-control spending sprees, and failing 'stimulus' policies," House of Representatives Republican leader John Boehner said in a statement.
The state of the labour market is also on the minds of policymakers at the Fed. Fed Chairman Ben Bernanke has said the U.S. central bank could take steps to further ease monetary policy if the recovery were to falter.
The Fed holds its next policy-setting meeting on Tuesday and the report is likely to keep debate alive on whether more easing is needed to avoid a drop in consumer prices that could further sap the economy.
U.S. economic growth slowed to a 2.4 per cent annual rate in the second quarter after expanding at a 3.7 per cent pace in the first three months of this year.
In contrast, the recovery in Europe appears to be picking up steam. A report on Friday showed a German industry output jumped in the second quarter, while economic growth in Italy rose moderately.
WORKWEEK, WAGES INCREASE
In a welcome sign, the report showed that the average workweek edged up to 34.2 hours after slipping to 34.1 hours in June. Employers normally increase working hours for existing staff before hiring additional workers.
Average hourly earnings increased by four cents to $22.59 last month.
"Average hourly earnings, our only monthly proxy of wages, rose 0.2 per cent after a distressing no gain in June," said Cary Leahey, economist at Decision Economics in New York.
"Add that together and it suggests that the liftoff point for GDP is not that bad for the third quarter. No one will lower their GDP forecast for the third quarter based on this report."
Despite the tepid private sector jobs growth, the pace of layoffs has moderated significantly from the first quarter of last year, when employers were culling an average of 752,000 jobs a month.
Last month, the dominant service sector added 38,000 jobs after June's 34,000 gain. More disturbing, temporary help services, seen as a harbinger of future permanent hiring, fell 5,600 after increasing 11,200. Temporary employment gains had averaged 45,000 per month from October 2009 to May.
State and local governments, struggling with huge budget deficits, purged more workers last month, combining with mass layoffs of temporary federal census workers to push government payrolls down by 202,000 compared to a 252,000 drop in June.
Payrolls in the goods-producing sector unexpectedly rose in July, reversing the prior month's decline as manufacturing employment was boosted by auto makers who did not shut down their plants in July for retooling. Manufacturing jobs increased 36,000 after gaining 13,000 in June.
The sector is leading the economic recovery, which started in the second half of 2009. However, construction employment fell 11,000. A strike in the sector reduced construction payrolls by 10,000 last month.