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Tags: US | jobs | jobless | Economy

Payroll Growth Eases Concern Despite Rise in Jobless Rate

Friday, 03 August 2012 08:34 AM EDT

The U.S. economy generated more jobs than forecast in July as automakers and health-care providers boosted employment, easing concern the three-year expansion is faltering, even as the unemployment rate unexpectedly rose.

The payrolls increase of 163,000 followed a revised 64,000 gain in June, Labor Department figures showed Friday in Washington. The median estimate of 89 economists surveyed by Bloomberg called for a gain of 100,000. The jobless rate, based on a separate survey of households, climbed to a five-month high of 8.3 percent.

Stocks rallied, halting a four-day decline for the Standard & Poor’s 500 Index, as the jobs data countered recent reports showing a contraction in manufacturing and slower consumer demand. Faster job growth is needed to push down an unemployment rate that has been stuck above 8 percent since February 2009, one reason why the Federal Reserve this week said it is prepared to take new steps if needed to boost the economy.

“Today’s numbers are better but not good enough,” said Brian Jones, a senior U.S. economist for Societe Generale SA in New York, who predicted payrolls would rise by 165,000. “We’re stuck in a channel of lackluster growth.”

Separately, figures from the Institute for Supply Management today showed that the non-manufacturing businesses making up about 90 percent of the economy expanded at a faster pace in July than a month earlier.

Private Payrolls

The Labor Department data showed that private payrolls, which exclude government agencies, rose 172,000, exceeding the forecast for a gain of 110,000. Including the July gain, the U.S. has recovered 4 million of the 8.8 million jobs lost as a result of the 18-month recession that ended in June 2009.

Among those who have found a job is Clayton Hopkins, 25. He’s starting work on Monday as a communications specialist at the San Francisco office of ICF International Inc., a consulting company. With a salary that will be 30 percent more than what he was paid at his previous job, he’s planning on splurging on either an Apple Inc. iPad or a Google Inc. Nexus 7 tablet, in addition to a laptop.

“I’m ecstatic,” said Hopkins, who gets together with friends periodically to share job-hunting tips. “It’s pretty grim out there, so I’m excited to be doing something that both feeds my soul and my wallet.”

Employment at private service providers increased 148,000, the most in five months and reflecting more jobs in education and health services. Construction companies cut payrolls by 1,000 workers, while retailers added 6,700.

Factory Employment

Factory payrolls rose by 25,000, more than twice the survey forecast of a 10,000 increase and boosted by a 12,800 pickup in employment at makers of motor vehicles and parts.

The figures may have reflected fewer shutdowns at automakers for annual retooling related to the new model year, indicating the jump will be reversed this month. Chrysler Group LLC and Ford Motor Co. are among companies that said they would idle fewer plants.

Honda Motor Co. is looking to expand. The Tokyo-based automaker, which relies on U.S. vehicle sales for more than half its profit, said it is investing $40 million at its Greensburg, Indiana, plant that produces the Civic compact and will hire 300 workers later this year.

Friday’s report showed a decline in long-term unemployment. The number of people out of work for 27 weeks or more decreased as a percentage of all jobless, to 40.7 percent, from 41.9 percent.

Cisco Systems

Some companies are cutting back. Cisco Systems Inc., the biggest maker of computer-networking equipment, plans to eliminate about 1,300 jobs, or 2 percent of the workforce, as Europe’s debt crisis and sluggish corporate spending threaten sales.

Financial firms are also trimming jobs as revenue softens. Morgan Stanley said its headcount will drop by about 700 in the second half, bringing total 2012 reductions to 4,000. Credit Suisse Group AG will eliminate 138 positions in New York starting this month. Deutsche Bank AG will cut about 1,900 jobs by year-end, mostly outside Germany. The lender is also shrinking compensation and benefits.

Charlie Jones, a Washington resident, has been out of work for more than a year. He says he is relying on food stamps for meals while his girlfriend pays the rent. He signed up with a temporary agency for jobs in office installation and is searching actively for other openings.

‘Tough’ Market

“It’s a very tough job market,” said Jones, 35. “It’s discouraging. I keep waiting but they haven’t called me in a long time. I have a friend like me who recently got work, so I think hopefully something should turn up for me.”

The unemployment rate was forecast to hold at 8.2 percent, according to the survey median. Estimates in the Bloomberg survey ranged from 8.1 percent to 8.3 percent. The report showed more people left the labor force.

The jobless rate is derived from a survey of about 60,000 households that is conducted by the Census Bureau. The change in payroll employment is derived from a Labor Department survey of almost 500,000 businesses.

Friday’s figures provided Republican presidential candidate Mitt Romney a fresh chance to highlight discontent over the economy even as President Barack Obama sought to pre-empt him with a swing-state ad campaign attacking the challenger’s tax plan.

“Today’s increase in the unemployment rate is a hammer blow to struggling middle-class families,” Romney said in a statement released by his campaign Friday.

Tax Cuts

Alan Krueger, chairman of the White House Council of Economic Advisers, used the report to renew the administration’s call for lawmakers to extend tax cuts for Americans earning less than $250,000 a year and act on Obama’s proposals for spending on infrastructure.

The jobs numbers show the economy is “continuing to heal from the very deep wounds” of the recession, Krueger said in a Bloomberg Television interview. Still, “the unemployment rate is too high.”

The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- increased to 15 percent from 14.9 percent.

Fed officials, after meeting this week, left unchanged their statement that economic conditions would likely warrant holding the benchmark interest rate target near zero at least through late 2014. They said unemployment “remains elevated.”

‘Closely Monitor’

Policy makers “will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” the Fed statement said.

Friday’s employment report probably doesn’t change the outlook for further easing by Fed policy makers at their next meeting on Sept. 12-13, said Drew Matus, a U.S. economist at UBS Securities in Stamford, Connecticut.

“It’s not good enough to take the Fed off the table, but it’s not bad enough for anyone to say definitively the Fed is going to move in September,” Matus said in a telephone interview.

Monthly payroll growth of about 100,000 is needed to keep the jobless rate stable, while growth of roughly 150,000 to 200,000 is needed to lower unemployment, Fed Chairman Ben S. Bernanke said at a news conference in April, citing a “very rough estimate.”

Growth Slows

Gross domestic product grew at 1.5 percent annual rate in the second quarter after a 2 percent gain in the first three months of the year, according to figures from the Commerce Department. Household purchases, which account for about 70 percent of GDP, grew at the slowest pace in a year.

The so-called fiscal cliff, in which taxes will rise and government agencies will reduce spending next year if Congress doesn’t act, raises the risk of more cutbacks. Lockheed Martin Corp., the world’s largest defense contractor, may have to dismiss about 10,000 of its 120,000 employees if lawmakers don’t act before $1.2 trillion in across-the-board cuts to federal spending, according to Robert Stevens, the Bethesda, Maryland- based company’s chief executive officer.

© Copyright 2023 Bloomberg News. All rights reserved.

Friday, 03 August 2012 08:34 AM
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