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U.S. unemployment rate rises to 9.2%, raising doubts about recovery

July 8, 2011 |  9:56 am

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The U.S. employment picture went from bad to ugly in June as employers added almost no new net jobs and the unemployment rate edged up for the third straight month, to 9.2%.

The report Friday from the Labor Department was a huge disappointment and raised fresh questions about the sustainability of the recovery, now technically starting its third year.

Major stock indexes fell sharply. Economists once again ratcheted down their expectations for future growth. And many others implored the federal government, deadlocked on how to address the deficit and intent on cutting spending, to step up and help the flagging economy and the millions of unemployed get back on their feet.

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Analysts still expect job growth to pick up in the second half of this year along with the broader economy, but the latest report fueled concerns about a possible double-dip recession. And it cast more doubts about job projections developed from old economic models for a new economy in which technology and globalization, combined with the powerful after-effects of a housing bust, have sharply limited new hires.

La-fi-jobs “It’s an abysmally weak report. All of the distress indicators are flashing red,” said Patrick O’Keefe,  economic research director at the financial advisory firm J.H. Cohn and former deputy assistant secretary at the U.S. Labor Department.

Analysts had raised their job-growth forecasts for June to 100,000 or more in recent days, hopeful of a rebound after surprisingly few job gains in May, which many attributed to temporary factors such as Japan's earthquake and the spike in oil prices.

But May wasn’t a blip. In fact, the growth of 54,000 jobs previously reported for that month was revised down Friday to just 25,000. And that was followed by a barely perceptible 18,000 new net jobs in June.

From February to April, employers added an average of 215,000 jobs per month. That was a solid, if less than spectacular, improvement from previous months, and had raised hopes that the long-awaited recovery in the job market was taking hold. But even that buildup in momentum proved fleeting.

The latest recession was officially declared to have ended in June 2009, but while company earnings and stocks have rebounded sharply, the job market has not. As of June, the nation’s total payrolls remain 7 million shy of what it was at the end of 2007 when the recession began.

Many economists say the economy needs to create 125,000 new net jobs a month just to keep pace with the growing population of working age people. O’Keefe believes that even more jobs, perhaps as many as 175,000 a month, are needed to hold the unemployment rate steady because many more older workers, their wealth stunted by the recession, have delayed retirement.

The unemployment rate, which had fallen to a two-year low of 8.8% in March, has ticked up in each successive month since then, to 9.2%.  Officially about 14 million are unemployed, almost half for six months or longer.

The unemployment rate would have risen even higher in June had not many thousands of people dropped out of the labor force, some presumably because of the discouraging outlook.

The Labor Department’s survey of households showed that the so-called participation rate -- those who are working or looking for work -- fell back to 64.1% of the working-age population. That is the lowest since March 1984, and reflects in part the weak hiring but also despair among many workers that they’ll be able to gain meaningful productive employment.

“It represents a huge loss, not just to the families and their kids but to the country,” said Heidi Shierholz, a labor economist at the Economic Policy Institute.  

Analysts said Friday’s jobs report was remarkable in that there was nothing positive in it. O’Keefe joked that the only bright spot he saw was that accounting jobs rose in June; it was up 2,200 jobs.  

But that small gain was overtaken by a loss of 2,600 jobs in legal services. And as a whole, business and professional services added just 12,000 new net jobs in June.

Manufacturing, instead of bouncing back up as many had expected, showed little change. Hiring in construction remained flat. The once-fast-growing temporary-help industry, considered a harbinger of broader hiring, shed jobs for the third month in a row.

Also, budget-strapped government offices eliminated an additional 39,000 jobs in June. And last month, federal payrolls added to the problems, contracting by 14,000, slightly more than the number of teachers and other workers cut from local education payrolls.

“The jobs crisis we face today will be a crisis for our children tomorrow as well unless we focus immediately on job creation and solid, sustainable economic growth,” said Christine Owens, executive director of the National Employment Law Project, in a statement.

Even for those with jobs, there was little relief in June. The average weekly work hours, an important indicator of employment activity, declined by 0.1 to 34.3.

And at a time when high oil and food prices are diminishing people’s spending power, the average hourly earnings for all private-sector employees dropped by one cent last month to $22.99. Over the past 12 months, average hourly earnings have increased by 1.9%, less than the overall rate of inflation.

"It's just an across-the-board retreat," Shierholz said. So bad was the report, she found it hard to describe it and its portent for the future, except to say: “This is really scary.”

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-- Don Lee in Washington

Photo: Job-seekers register and pick up fliers at Los Angeles Mission's 10th annual Skid Row career fair in June. Credit: Kevork Djansezian / Getty Images

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