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07/08/2010 11:00 (553 Day 03:15 minutes ago) | |||||
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The FINANCIAL -- The U.S. economy shed more jobs than expected in July while the unemployment rate held steady at 9.5%, a further sign the economic recovery may be losing momentum, Nikkei.com informed.
Nonfarm payrolls fell by 131,000 last month as the rise in private-sector employment was not enough to make up for the government jobs lost, the U.S. Labor Department said on August 6. Only 71,000 private-sector jobs were added last month while 143,000 temporary workers on the 2010 census were let go.
Economists polled by Dow Jones Newswires were expecting total nonfarm payrolls to drop by a smaller 60,000 in July.
The June data were revised down significantly. Payrolls fell 221,000 that month, more than the 125,000 drop previously reported, as only 31,000 jobs were added in the private sector.
Taking into account revisions to prior months this year, the U.S. economy added an average of less than 100,000 jobs a month in the first seven months of 2010, a level that isn't strong enough to bring unemployment down.
The jobless rate, which is calculated using a separate household survey, held steady at 9.5% in July. Economists were expecting it to edge higher to 9.6%.
After the worst recession in decades, the recovery that began in July 2009 has recently been losing momentum, but it's hard to say if it's just a temporary slowdown or if the economy could start to contract again. The Federal Reserve may consider taking steps to support the economy when officials meet next Tuesday. Some worry that with unemployment still so high and consumer prices recently dropping, the U.S. economy runs the risk of falling into a Japan-like deflationary trap of very slow growth and falling prices.
U.S. Treasury prices rose, pushing two-year yields down to a record low, and the U.S. dollar was pummeled as the jobs report stoked fears about the strength of the economy. Market expectations grew that the Fed could move to further support the economy.
"The disappointing report today may force the Fed back into action," said Chris Rupkey, economist at Bank of Tokyo-Mitsubish. He added Fed officials "risk their own credibility by doing so as they are out of bullets with rates having been pushed to zero way back in December 2008."
To fight the devastating financial crisis and ensuing recession, the Fed already slashed short-term rates close to zero and made a commitment to keep them there for an extended period. It also bought some $1.7 trillion in government debt and mortgage bonds to bring down long-term borrowing rates.
Many Fed officials don't want to resume the purchases, which ended in March. But they could take a smaller step to reinvest proceeds from maturing mortgage bonds into U.S. Treasurys. Until now, the Fed has been letting the private debt holdings shrink as the securities mature.
The move would signal to markets that the central bank is taking the risk of an economic slowdown seriously. Other options include making a more explicit pledge to keep short-term rates near zero or starting new asset purchases, but the latter is only likely if things get really bad.
"It still feels like a recession," Jay Feldman, economist at Credit Suisse, wrote in a note. He pointed out that private jobs are still down 0.3% compared with 13 months ago, when the economy started to grow again. By contrast, private jobs were up by 3.5% on average in the job market recoveries of the 1960s, 70s, and 80s.
Friday's report showed that manufacturing jobs were among the few that continued to trend up, rising by 36,000 after a 13,000 increase in June. Motor vehicles and parts had fewer seasonal layoffs than normal in July, the Labor Department said. Construction, a sector of the economy that is still suffering, lost 11,000 jobs in July.
Total government employment fell by 202,000 last month, hurt by the laying off of the census workers and by 48,000 jobs lost in state and local governments, which have significant budget strains.
In a sign of the labor market's continued weakness, Friday's report showed that 45% of unemployed Americans, or 6.6 million people, were out of work for more than six months in July. The longer someone is without a job, the harder it is to find work. With time, people lose skills--and employers are often loathe to hire someone who hasn't been working for long periods.
In a slightly positive sign, the average workweek edged higher to 34.2 hours in July from 34.1 the previous month. More hours means more pay, giving a lift to consumers' spending power.
Meantime, the report also showed that average hourly earnings of all employees increased by $0.04 to $22.59 in July.
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