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07/06 12:19

U.S. Economy: June Unemployment Rose as Growth Slowed (Update1)

By Siobhan Hughes

Washington, July 6 (Bloomberg) -- The U.S. unemployment rate rose in June, matching a two-year high, and payrolls declined more than expected as businesses fired workers to preserve profits in a slowing economy.

The unemployment rate rose to 4.5 percent, from 4.4 percent in May, the Labor Department said. That equaled the rate in April, which was the highest since March 1998. The economy lost 114,000 jobs after adding 8,000 positions a month earlier and losing 165,000 in April.

Manufacturing payrolls dropped for an 11th straight month as companies such as Minnesota Mining & Manufacturing Co. fired workers. Service-producing businesses added the fewest jobs since August, a sign that a deterioration in the labor market has spread to other parts of the economy.

``The continuing decline in jobs and the concentration of job losses in manufacturing are signs that we still haven't reached bottom,'' said Carl Camden, chief operating officer of Kelly Services Inc., the second-biggest temporary-employment company. ``We probably still have a few more months of rising unemployment,'' he said in an interview.

3M said this week it is proceeding with a plan announced in April to eliminate 5,000 jobs. Agere Systems Inc. said last Friday it will cut 4,000 jobs in a second round of firings since Lucent Technologies Inc. sold shares in the chip unit in March.

Treasury Securities Rise

Treasury securities rose and the dollar fell against the euro on expectations Federal Reserve policy makers may lower the overnight bank lending rate a seventh time this year in an effort to boost the economy.

A quarter percentage-point reduction in the rate ``would add a psychological boost to the consumer,'' whose spending ``is the only thing keeping the economy afloat,'' said Richard Yamarone, chief economist at Argus Research Corp. in New York.

The U.S. economy grew at a 1.4 percent annual rate from October to March, the worst performance in a decade. Still, the world's largest economy will probably expand at a 2 percent annual pace in the third quarter and a 2.9 percent rate in the final three months of this year, according to analysts surveyed by Bloomberg News from June 13 to June 28.

Other figures released this week suggest the economy may be on the mend. Manufacturing reports from the National Association of Purchasing Management and the Commerce Department showed larger- than-expected increases. A report on businesses outside of manufacturing showed expansion in June for the first time in three months.

Expectations

Analysts expected a decrease of 50,000 jobs after May's previously reported loss of 19,000 positions.

The Treasury's 10-year note rose 7/32 point, pushing down its yield 3 basis points to 5.36 percent. The Dow Jones Industrial Average fell 241 points, or 2.3 percent, and the Nasdaq Composite Index fell 76 points, or 3.7 percent.

Fed policy makers reduced the overnight bank lending rate to 3.75 percent last week, the lowest in seven years. Central bankers have said they hope lower rates will shore up consumer spending enough to keep the economy from sliding into recession.

This year's rate cuts, along with tax rebates that will be mailed this month, will contribute to a rebound by 2002, some said. ``I think we'll be moving in the right direction by year- end,'' Robert Parry, president of the Fed Bank of San Francisco, said in a speech last month.

Manufacturing has borne the brunt of the slowdown. Factories lost 113,000 jobs in June after shedding 127,000 positions in May.

``I don't know how much more hemorrhaging the manufacturing sector can take,'' Yamarone said.

Service Jobs

The weakness has spread to services industries. June services employment, including government hiring, rose 5,000 after rising 97,000 a month earlier. The June increase was the smallest since a decline in August of last year.

Interstate Bakeries Corp., the maker of Hostess Twinkies and Wonder Bread, has consolidated plants and cut more than 400 delivery routes this year to cut costs.

``In our sales distribution operations we have reduced the numbers of salesmen that go to the stores and it made it more productive,'' Frank Coffey, Chief Financial Officer, Interstate Bakeries Corp., said in an interview. ``When the job market was so hot we had trouble getting people to work in our bakeries and work these routes. Since the job market has cooled down we have not had the problem.''

Employment at financial-services firms fell in June and construction jobs dropped. Still, monthly job growth in construction has averaged 15,000 so far this year.

Available Workers

The pool of available workers -- which combines the number of unemployed job seekers, plus those not looking for work in the last 12 months who said they would take a job -- rose to 11 million in June from 10.7 million in May.

The Labor Department also said the percentage of the U.S. population holding jobs fell to 63.7 percent in June from 63.9 percent in May. The percentage is the lowest since April 1997, when it was also 63.7.

Average weekly earnings rose to $490.15 during June from $488.78 in May. Workers' average hourly earnings increased 0.3 percent, or four cents, in June, the same as a month earlier.

The government's monthly job growth figures are based on statistics provided by businesses, while the unemployment rate is based on a survey of U.S. households.

Among blacks, the unemployment rate rose to 8.4 percent from 8 percent in May. The jobless rate for Hispanics rose to 6.6 percent from 6.2 percent.

For teenagers, unemployment increased to 14.3 percent from 13.6 percent in May. The jobless rate for women held at 3.8 percent in June. The jobless rate for men rose to 4 percent from 3.9 percent.

-- (M@rket.trends), July 06, 2001