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U.S. Economy: Job Cuts in June Deeper Than Forecast
By Shobhana Chandra
July 2 (Bloomberg) -- Employers in the U.S. cut more jobs than forecast in June and the unemployment rate rose to the highest in almost 26 years, offering little evidence the Obama administration’s stimulus package is putting Americans back to work.
Payrolls declined by 467,000 and followed a 322,000 drop in May, according to Labor Department figures released today in Washington. The jobless rate rose to 9.5 percent, the highest since August 1983, from 9.4 percent.
Stocks tumbled and bond yields fell as investors bet the 18th straight month of job cuts will further sap consumer spending, weakening a recovery from the deepest recession in half a century. The economy has lost about 6.5 million jobs since December 2007 as companies from General Motors Corp. to Kimberly-Clark Corp. cut costs.
“Companies are laying off people and not hiring them back,” said Roger Kubarych, chief U.S. economist at Unicredit Global Research in New York, who forecast payrolls would decline by 450,000. “This leaves us with a weak, irregular recovery.”
Stocks slid, with the Standard & Poor’s 500 Index dropping 2.3 percent to 902.01 at 12:48 p.m. in New York. Treasuries rose, sending yields on benchmark 10-year notes to 3.48 percent from 3.54 percent late yesterday.
The growing ranks of the jobless are allowing companies to restrain wage growth and reduce the work week, eroding the consumer spending that makes up about 70 percent of the economy, today’s report suggested.
Bargaining Power
“Workers’ bargaining power for wages is evaporating,” said Ryan Sweet, an economist at Moody’s Economy.com in West Chester, Pennsylvania. “Outright declines in wages could unravel the recent stabilization we’ve seen in consumer spending and home sales.”
The average work week fell to 33 hours, the lowest level since records began in 1964, from 33.1 hours in May, today’s report showed. Average weekly hours worked by production workers rose to 39.5 hours from 39.4 hours, while overtime held at 2.8 hours. That brought the average weekly earnings down to $611.49 from $613.34.
Workers’ average hourly wages held at $18.53 for a second month. Hourly earnings were 2.7 percent higher than June 2008, the smallest gain since September 2005. Economists surveyed by Bloomberg had forecast a 0.1 percent increase from the prior month and a 2.9 percent gain for the 12-month period.
Below Peak
The payrolls decline in June was still well below the peak of 741,000 jobs lost in January, suggesting the economy remains on track for a recovery later this year, economists said.
“The huge job losses of the first quarter are well behind us now,” said Chris Low, chief economist at FTN Financial in New York. “We continue to expect positive economic growth in the third quarter.”
Still, President Barack Obama said in an interview with the Associated Press that he is “deeply concerned” about the labor
market. “What we are still seeing is too many jobs lost,” Obama said after the report was released, according to the AP.
The economy is forecast to start growing again in the second half of this year, according to economists surveyed by Bloomberg in June. They predicted a growth rate of 0.5 percent in the July to September period and 1.9 percent in the final three months of 2009.
Factory Orders
A gain in orders placed at U.S. factories reinforced signs that the economy may be stabilizing. Factory orders climbed for a third time in four months in May on rising demand for aircraft, machinery and computers, a separate report from the Commerce Department showed today. Bookings gained 1.2 percent, the most since June 2008, after a 0.5 percent increase in April.
Payrolls were forecast to drop 365,000 after a 345,000 decrease initially reported for May, according to the median of 79 economists surveyed by Bloomberg News. Estimates ranged from declines of 150,000 to 500,000. Job losses peaked at 741,000 in January, the most since 1949.
The jobless rate was projected to climb to 9.6 percent from 9.4 percent. Forecasts ranged from 9.3 percent to 9.7 percent. By the end of the year, unemployment will reach 10 percent, according to the median forecast of economists surveyed last month.
Today’s report showed factory payrolls fell by 136,000 after decreasing 156,000 the prior month. Economists forecast a drop of 150,000. The drop included a decline of 26,500 jobs in auto manufacturing and parts industries.
More firings are in the works following the bankruptcies of GM and Chrysler LLC as shutdowns ripple through auto-parts makers and car dealers. Payrolls at builders fell 79,000 after decreasing 48,000.
Service Industries
Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 244,000 workers after falling 107,000. Retail payrolls decreased by 21,000 after a 17,600 drop. Financial firms reduced payrolls by 27,000, after a 30,000 drop the prior month.
Government payrolls decreased by 52,000, the biggest decline since July 2007, after dropping 10,000 the prior month.
California Governor Arnold Schwarzenegger said he’ll force state workers to take a third unpaid day off every month to conserve cash and will order lawmakers into an emergency session to tackle the state’s growing budget deficit.
The decrease reflects the layoff of workers hired on a temporary basis to prepare for the 2010 census. The U.S. Census Bureau has said it will hire more than 1.4 million people over the next year to conduct the population count that happens once every 10 years.
Incomes Propped Up
Tax cuts and Social Security payments under the stimulus plan propped up incomes last quarter, supporting household purchases. Consumer spending rose in May as earnings climbed 1.4 percent, the most in a year.
Still, the wealth destruction caused by the housing and stock-market slumps prompted Americans to rebuild nest eggs. The savings rate in May surged to a 15-year high.
Household purchases dropped at a 0.6 percent annual rate last quarter before growing again in the second half of the year, according to the median forecast of economists surveyed by Bloomberg in early June. Purchases rose at a 1.4 percent pace in the first three months of 2009.
The auto industry isn’t alone in trimming jobs. Kimberly- Clark, the maker of Huggies diapers and Kleenex tissues, plans to cut 1,600 jobs worldwide by year-end. About 800 salaried employees will leave Deere & Co., the world’s largest maker of agricultural equipment, under a voluntary program.
Earnings Decline
“These actions, while difficult, are necessary to help us emerge from this demanding economic environment,” Kimberly- Clark’s Chairman and Chief Executive Officer Tom Falk said in a June 25 statement. The company’s net income has declined for six straight quarters.
3M Co., the maker of Post-it Notes and Scotch Tape, reduced positions and offered early retirement to workers, while Dow Chemical Co., the largest U.S. chemical maker, is cutting jobs following the acquisition of Rohm & Haas Co.
The number of Americans filing claims for unemployment benefits last week fell in line with forecasts, Labor also said, indicating firings remain elevated. Initial jobless claims dropped by 16,000 to 614,000 in the week ended June 27, from a revised 630,000 the week before.
Revisions added 8,000 to payroll figures previously reported for May and April.
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