(BLOOMBERG) Private employers added fewer workers to payrolls in June than forecast, reinforcing concerns the recovery will weaken as Americans curtail spending.
Employment at companies rose 83,000, less than the 110,000 gain forecast by economists in a Bloomberg News survey. Including government, payrolls fell for the first time this year because of a drop in federal census workers. The jobless rate dropped to 9.5 percent from 9.7 percent as the labor force shrank.
Declines in the average workweek and hourly earnings make it more likely consumers will pull back, hurting sales at retailers including Best Buy Co. The report caps a month of data that points to weakness in housing and a slowdown in manufacturing, leaving the U.S. more vulnerable to fallout from the European debt crisis and cooling growth in China.
"We have economic recovery, but not at the pace people had expected or hoped," said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. "It is neither a V-shaped recovery nor a double-dip recession. It is very frustrating to a lot of people."
Stocks swung between gains and losses after the report. The Standard & Poor's 500 Index fell 0.3 percent to 1,024.18 at 11:23 a.m. in New York after rising as much as 0.5 percent. The dollar weakened to $1.2594 per euro from $1.2527 late yesterday.
Overall payrolls declined by 125,000 last month as the government cut 225,000 temporary workers conducting the 2010 census. Economists projected a decline of 130,000 payrolls, according to the median forecast in the Bloomberg survey. Employment rose a revised 433,000 in May.
Best Buy, the world's largest consumer-electronics retailer, last month reported first-quarter profit that rose less than analysts projected as some U.S. shoppers bought fewer games and movies.
At Finish Line Inc., an athletic footwear retailer based in Indianapolis, Indiana, Chief Executive Officer Glenn Lyon said he foresees a "less than robust consumer environment" in the second half of the year.
"We will be facing headwinds in the form of inconsistent customer traffic" and more challenging sales comparisons, Lyon said on a June 25 conference call with analysts.
Average hourly earnings fell 2 cents to $22.53 in June, today's report showed. The average work week for all workers declined to 34.1 hours in June from 34.2 hours the prior month.
The economy, jobs and the budget deficit are likely to be top issues in November elections that will decide control of Congress.
President Barack Obama, speaking at Andrews Air Force Base outside Washington, said today's unemployment figures show that the economy is "headed in the right direction," though "we are not headed there fast enough for a lot of Americans."
The pace of hiring signals it will take years for the world's largest economy to recover the more than 8 million jobs lost during the recession that began in December 2007. Joblessness, which reached a 26-year high of 10.1 percent in October, will take time to recede as the number of previously discouraged jobseekers returning to the labor force exceeds the number of available jobs.
A report yesterday from the Institute for Supply Management showed manufacturing, which has been leading the recovery, expanded in June at the slowest pace this year as factories as orders and exports cooled.
Home Purchase Contracts
The number of contracts to purchase previously owned houses plunged 30 percent in May after a homebuyer tax credit expired, the National Association of Realtors said yesterday. The drop was the biggest in records dating to 2001.
Last week, the Commerce Department reduced its estimate for the pace of economic growth in the first quarter to 2.7 percent from 3 percent, reflecting weaker consumer spending and a larger trade deficit.
Labor-market weakness "will lead to second-half consumption growth well below the first half," said John Herrmann, a senior fixed-income strategist at State Street Global Markets in Boston.
Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., said the June employment report suggests "very slow economic and job growth going forward."
"I don't think the Federal Reserve can raise interest rates in the face of unemployment near 10 percent," Gross, Pimco's co-chief investment officer, said during a radio interview on Bloomberg Surveillance with Tom Keene.
Fed policy makers last month repeated their pledge to keep the benchmark interest rate near a record low for an "extended period" and warned that financial-market turmoil linked to the European debt crisis may harm U.S. growth.
The Standard & Poor's 500 Index dropped 12 percent from April through June, breaking a four-quarter winning streak that sent the benchmark gauge up 47 percent. The drop was the biggest since the last three months of 2008. Treasury securities soared, sending the yield on the benchmark 10-year note down to 2.93 percent at the close on June 30 compared with 3.83 percent on March 31.
China's efforts to cool its economy, the world's third largest, may also temper the global expansion, reducing overseas demand for U.S. goods.
Goldman Sachs Group Inc. cut its growth forecast for China this year to 10.1 percent from 11.4 percent as government restrictions on lending and real estate slow expansion in the world's fastest-growing major economy.
U.S. manufacturing payrolls increased by 9,000 in June, the smallest gain this year and less than the survey median of a 25,000 increase, today's Labor Department figures showed.
In another sign manufacturing may be slowing, orders placed with factories declined 1.4 percent in May, more than economists forecast, according to a Commerce Department report today. The decrease in bookings was the biggest since March 2009 and followed a revised 1 percent gain in April.
Private employment in June was led by gains in education and health services, transportation and leisure and hospitality.
Economists surveyed forecast the jobless rate, which fell to the lowest level since July 2009, would rise to 9.8 percent last month. The decline in June reflected a 652,000 decrease in the size of the labor force.
The drop in census workers left 339,000 temporary employees still working on the population count, indicating more cuts to come that will keep distorting the employment figures for months. For that reason, economists say private payrolls, which exclude government jobs, will be a better gauge of the state of the labor market for much of 2010.
The number of unemployed in June was 14.6 million. Of those, the largest number, or 3.46 million, were between the ages of 25 and 34. The jobless aged 45 to 54 numbered 2.72 million, followed by 35 to 44 year-olds at 2.62 million.
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 — decreased to 16.5 percent from 16.6 percent.
The number of temporary workers increased 20,500. Payrolls at temporary-help agencies often pick up before companies take on permanent staff.
To contact the reporter on this story: Bob Willis in Washington at firstname.lastname@example.org