WASHINGTON - The economy is likely to keep stumbling at least through the rest of the year, analysts agreed yesterday, after a disappointing government report showed that payroll jobs fell by 62,000 in June, the sixth straight month of job losses.
"More job losses are coming through the remainder of the year. The economy has lost just over 400,000 jobs since the start of the year and will lose another 400,000 by year's end," said Mark Zandi, chief economist for forecaster Moody's Economy.com. "Behind this pessimism are the broad-based job declines across most industries and regions of the country."
The Labor Department said yesterday that the unemployment rate held steady at 5.5 percent in June despite the 62,000 lost payroll jobs. Still, that confirmed that May's unusual half-point jump in the jobless rate wasn't an aberration as first thought.
"We had thought that the rate had temporarily overshot in May based on problems seasonally adjusting the summer inflow of students into the work force," Nigel Gault, chief U.S. economist for forecaster Global Insight in Lexington, Mass., said in a research note to investors. "But the unemployment rate for young workers was little changed this month, suggesting that they are simply facing a much weaker labor market than in previous years."
The manufacturing, construction, financial and retail sectors led the job losers, while government and health care continued to add jobs. This is a continuing pattern and a chief reason that forecasters see more job losses ahead.
"Job losses are occurring in over half the nation's states, with large declines in big states such as California, Florida, Michigan and Ohio," Zandi said. "There is nothing in today's jobs report that suggests the job market will stabilize anytime soon."
Although June's employment losses were slightly worse than expected, they were below the number associated with economic recessions.
"Obviously, we're disappointed. We don't like to see jobs lost," Commerce Secretary Carlos Gutierrez said. "It is important, however, to put it in perspective. During the mild recession of 2001, we were losing 180,000 [jobs] per month. No one is insinuating that there is positive news here, [but] it's important to keep it in perspective."
Gutierrez expects a rebound later this year.
Wall Street shrugged off the bad news. In a trading day shortened by the Fourth of July holiday, the Dow Jones industrial average and the S&P; 500 gained. The Nasdaq lost 6 points.
Investors also were surprisingly unmoved by yesterday's announcement of a quarter-point interest rate increase by the European Central Bank, the first such increase in a year. The move adds pressure on the Federal Reserve to raise short-term lending rates when its policymaking group meets Aug. 5.
U.S. consumer inflation is running at a year-over-year pace of 4.2 percent through May, driven up by rising energy and food prices. The Fed's benchmark lending rate is at a low 2 percent. In normal times, rising inflation triggers preventive boosts in interest rates.
However, there's nothing normal about today's U.S. economy. The housing market is in its worst slump in modern times, the banking sector is enduring a credit crisis that's dried up all but the safest lending and the auto industry is in a severe slump. An interest-rate rise now, it is commonly feared, could tip the sluggish economy into recession.
"The Fed remains in a very difficult spot. Inflation is continuing to climb, but the outlook for future growth is darkening at the same time," Global Insight's Gault wrote. "We believe that the economy is too fragile for a rate hike before 2009."
Fed Chairman Ben S. Bernanke has indicated that he thinks the economic slowdown will keep inflation in check - if energy prices eventually fall.
Bernanke got some good news from yesterday's job numbers: Hourly wages remained stable. While that's not great news for consumers facing higher food and gasoline costs, it means there's no sign yet of a surge in wages chasing prices, which would trigger an upward inflationary spiral.