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U.S. June Payrolls Rise 146,000; Jobless Rate Falls to 5%

U.S. June Payrolls Rise 146,000; Jobless Rate Falls to 5%

July 8 (Bloomberg) -- U.S. employers added 146,000 workers to payrolls in June and the unemployment rate fell, supporting the Federal Reserve's view that the labor market is improving gradually. The gain was less than forecast, reflecting deeper than expected cuts in factory jobs.

The increase follows a gain of 104,000 jobs in May that was more than initially reported, the Labor Department said today in Washington. The jobless rate fell from 5.1 percent to 5 percent, the lowest since the terrorist attacks in September 2001.

Job gains are fueling incomes, helping diminish the effects of higher fuel costs and keeping consumer spending from faltering, economists said. The economic expansion ``remains firm'' even with crude oil costs close to a record, Fed policy makers said last week after raising interest rates.

``Slowly but surely the job market is improving, but it's an achingly slow process in the expansion,'' said Doug Porter, an economist with BMO Nesbitt Burns in Toronto, before the report.

Economists predicted payrolls would rise by 200,000 last month from the 78,000 the government first reported, according to the median of 73 forecasts in a Bloomberg News survey. Estimates ranged from 95,000 to 300,000. Economists also forecast the unemployment rate would hold at 5.1 percent.

Economists have overestimated June payrolls in each year since 2000, Bloomberg data show. Employment in June and July is difficult for economists to forecasts because of the government's seasonal adjustment such as those for education workers, said Joseph LaVorgna, chief U.S. fixed-income economist at Deutsche Bank Securities in New York, before the report.

Surveys

The payroll numbers are based on a survey of employers. A separate survey of households determines the jobless rate. That survey showed employment rose by 163,000 last month.

Today's report showed the economy created 542,000 payroll jobs in the second quarter, compared with 546,000 in the first quarter and 569,000 in the final three months of 2004. The data suggest that, aside from monthly volatility, employment gains have been consistent.

Employment in service-producing industries, which include retailers, banks and government agencies, rose by 150,000 last month after adding 96,000 in May, the report showed. Employment at temporary help services rose by 8,800.

Manufacturing payrolls fell by 24,000 jobs last month, the most since January, after declining by 6,000 in May. U.S. automakers including General Motors Corp., the world's biggest automaker, have been cutting production to cope with a slowdown in sales earlier this year. Automakers accounted for 17,900 of the decline in manufacturing jobs.

Workweek and Wages

The manufacturing workweek held at 40.4 hours last month and overtime was steady at 4.4 hours. The number of average weekly hours worked by production workers held for a second month at 33.7.

Incomes rose last month. Workers' average hourly earnings increased 0.2 percent, or 3 cents, matching the median forecast. Average weekly earnings rose $1.01 to $541.22 last month. The earnings data are for non-supervisory production workers, which account for 80 percent of payroll employment.

Wage gains are helping power consumer spending at retailers and other service industries. Wages and salaries were up 7 percent in May from the same time last year, according to the latest data from the Commerce Department. Those statistics reflect earnings of all workers, including those at supervisory positions.

``The economy is going along well and the labor market is pretty good,'' said William Zadrozny, chief executive of Siemens Financial Services, the Iselin, New Jersey-based lending unit of Siemens AG, in an interview yesterday. ``Companies are hiring slowly and methodically.''

Economic Growth

Retailers from Wal-Mart Stores Inc. to Nordstrom Inc. posted their biggest sales gain in 13 months in June, the International Council of Shopping Centers said yesterday. Bentonville, Arkansas- based Wal-Mart topped its forecast for a gain of as much as 4 percent and said July sales will climb 3 percent to 5 percent.

The economy probably expanded at a 3.3 percent annual rate in the second quarter and will grow at a 3.4 percent pace this quarter, according to a Bloomberg survey of economists last month. Growth is exceeding the 3 percent annual average during the past three decades. The economy grew at a 3.8 percent rate in the first quarter and 4.4 percent for all of last year.

Sunnyvale, California-based Yahoo! Inc., the most-visited Web site, is hiring engineers and adding services to carve out a bigger piece of the expanding market for Internet-based calling, Vice President Brad Garlinghouse said in an interview July 6.

Humana Inc., the biggest manager of health-insurance plans for the U.S. military, said June 30 it will create about 1,100 jobs in Louisville, Kentucky, where it is based.

Dell Inc., the world's largest maker of personal computers, said on July 5 that it's expanding its call center operations in Oklahoma City to as many as 1,000 from initial projections a year ago of 250 to 500. The increase is in response to stronger sales.

Fed Policy

Job and income growth are enough to keep Fed policy makers on a path of gradual interest rate increases, economists said.

``Increases in employment can't be sustained without putting pressure on wages, and that means pressure on the Fed to continue raising rates,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, before the report.

Policy makers raised the benchmark U.S. interest rate a quarter point to 3.25 percent on June 30 and restated a plan to carry out further increases at a ``measured'' pace to help contain inflation.

Some companies are still trimming their workforces to reduce costs, and rising energy costs may be making some cautious about adding expenses such as additional workers, said economists including Elisabeth Denison at Dresdner Kleinwort Wasserstein.

North Canton, Ohio-based Diebold Inc., which makes automated teller and electronic voting machines, slashed its second-quarter profit forecast and said it will eliminate 300 jobs to reduce costs.

Energy Prices

Crude oil surged to a record $62.10 a barrel this week in New York on speculation that a storm would disrupt shipments along the U.S. Gulf coast. Gasoline and heating oil also rose to records as refineries shut.

A measure of future business investment, orders for non- defense capital goods excluding aircraft, fell 2.5 percent in May, according to a July 5 report from the Commerce Department.

Monthly payroll gains averaged about 50,000 a month between November 2001, the start of the current expansion, and May of this year. In the 10-year expansion that ended in March 2001, payrolls averaged about 198,000.

Productivity, a measure of how much an employee produces for every hour of work, grew in the first quarter at the fastest pace in nine months, the government reported June 2. Productivity gains will slow in coming months, prompting companies that were hesitant to add workers earlier in the expansion to pick up the pace of hiring, said Ethan Harris, chief U.S. economist at Lehman Brothers Inc. in New York.

To contact the reporter on this story:
Joe Richter in Washington [e-mail].


LINK: http://quote.bloomberg.com/apps/news?pid=10000006&sid=aW6yJzGBonBw&refer=home