Unemployment rate rises to 4.5 percent
By Jeannine Aversa
Associated Press
WASHINGTON — The nation's unemployment rate climbed to 4.5 percent as the economy shed 114,000 more jobs in June, capping the biggest three-month job decline since the last recession a decade ago.
The 0.1 percentage point increase returned the jobless rate to the same level as in April. The jobless rate had temporarily dipped to 4.4 percent in May.
The Labor Department report yesterday showed that the job losses in June were centered in manufacturing, which suffered its 11th straight month of job cuts as factory workers continued to bear the brunt of the yearlong economic slowdown.
Employment was also weak last month in the service sector, where most Americans are employed, adding just 5,000 jobs, the poorest showing in 10 months.
The Bush administration, which took office emphasizing the economy's weakness in an effort to build support for President Bush's tax cut, insisted yesterday that the economy will rebound in coming months, helped by the tax cut Congress has passed and lower interest rates from the Federal Reserve.
"The stable economy is poised to take off after tax rebate checks begin to arrive at the homes of American taxpayers this summer and fall," said Labor Secretary Elaine Chao.
But many private economists were not as optimistic. They said that the rise in the unemployment rate, which had fallen to a three-decade low of 3.9 percent last October, could raise fears among Americans about their own job prospects.
If these concerns became widespread, they could trigger a cutback in consumer spending, the major force that has kept the economy out of a recession so far.
"We continue to see labor markets deteriorating," said Richard Berner, chief economist at Morgan Stanley in New York. He blamed much of the job loss on companies fighting a profit squeeze by laying off workers.
Berner said he believes the country will endure a small recession, with economic output contracting in the just-completed second quarter and the third quarter of this year. By one definition, a recession reflects two consecutive quarterly declines in the gross domestic output.
The worse-than-expected unemployment report deepened fears on Wall Street that a sustained economic rebound will not occur until next year, meaning that corporate profits will be squeezed for a longer period.
The Dow Jones industrial average lost 227.18 points to close at 10,252.68, marking the seventh consecutive week the blue-chip index has lost ground. The technology-heavy Nasdaq lost 75.95 to close at 2,004.16.
Despite the gloom on Wall Street, more optimistic private forecasters said they still think the economy will rebound this year, helped out by $40 billion in tax rebates and the aggressive interest rate reductions.
"There is no doubt that the June unemployment report is weak, but we think the second quarter will turn out to be the worst," said Chris Varvares, president of Macroeconomic Advisers, an economic forecasting firm in St. Louis.
Varvares said the overall economy, as measured by the gross domestic product, probably slowed to a barely discernible growth rate of 0.5 percent in the April-June quarter but will rebound to growth of around 2.5 percent in the current quarter. Varvares predicted an even better 3 percent growth rate in the fourth quarter.
Even if the economy does pick up, economists cautioned that the jobless rate, which is a lagging economic indicator, will continue rising for several more months, with some predicting it could hit 5 percent by year's end.
In the April-June quarter, non-farm businesses cut their payrolls by 271,000, the worst performance since the depths of the 1990-91 recession.
In addition to the loss of 114,000 jobs in June, payrolls were reduced by 165,000 in April and managed just a tiny increase of 8,000 in May.
For June, manufacturing companies cut 113,000 jobs, bringing the total lost in this sector to 785,000 over the last year.
"The collapse in the manufacturing sector seems to have no end," said Joel Naroff, chief economist of a Holland, Pa., forecasting firm.
He and other analysts said that if the jobs picture remains weak in July, the Fed can be expected to cut rates for a seventh time when they meet on Aug. 21.
For June, the drop in manufacturing jobs was led by decreases in computer-related industries, with electronic equipment manufacturers shedding 31,000 jobs.
Even the service sector was weak last month, managing a gain of just 5,000 jobs as temporary help firms trimmed their payrolls for a ninth straight month.
