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Unemployment rose to 9.2 percent as hiring stalls

July 8th, 2011 10:56 am by CHRISTOPHER S. RUGABER

WASHINGTON (AP) — Hiring slowed to a near-standstill last month, raising doubts that the economy will rebound in the second half of the year after a spring slump.

The economy generated only 18,000 net jobs in June, the fewest in nine months. The unemployment rate rose to 9.2 percent, the highest rate of the year.

Stocks plunged after the report was released. The Dow Jones industrial average fell 132 points in the first hour of trading. Broader indexes also declined.

"June's employment report doesn't have a single redeeming feature," said Paul Ashworth, an economist at Capital Economics. "It's awful from start to finish."

Two years after the recession officially ended, companies are adding fewer workers despite record cash stockpiles and healthy profit margins.

Businesses added just 57,000 jobs last month— the fewest in more than a year. Governments cut 39,000 jobs. Over the past eight months, federal, state and local governments have cut a combined 238,000 positions.

It was the second straight month of feeble job growth. The number of jobs added in May was downwardly revised to 25,000.

Companies have pulled back on hiring after adding an average of 215,000 jobs per month from February through April. The economy typically needs to add 125,000 jobs per month just to keep up with population growth. And at least twice that many jobs are needed to bring down the unemployment rate.

Economists have said that temporary factors, in part, have forced some employers to scale back hiring plans. High gas prices have cut into consumer spending, which fuels 70 percent of economic activity. And supply-chain disruptions stemming from the Japan crisis have slowed U.S. manufacturing production.

In June, hiring was weak in most sectors: Manufacturers added only 6,000 jobs; Education and health care, which added jobs through the recession, was flat; and professional and business services, which include accounting, legal and engineering jobs, grew by only 12,000.

Construction and financial services cut jobs.

The sluggish economy and anemic hiring is causing more people to simply give up looking for work. More than a quarter-million people stopped their job searches in June. That kept the unemployment rate from rising even further. When laid-off workers stop looking for work, they are no longer counted as unemployed.

Including discouraged workers and those working part time, but who would prefer full-time work, the "under-employment" rate jumped from 15.8 percent to 16.2 percent.

Unemployment has topped 8 percent for 29 months, the longest streak since the 1930s. It has never been so high so long after a recession ended. At the same point after the previous three recessions, unemployment averaged just 6.8 percent.

And those who do have jobs are earning less. Average hourly wages declined last month. After-tax incomes, adjusted for inflation, have been flat this year.

The average work week declined to 34.3 hours, from 34.4, which means employers demanded less work from their existing staffs. Usually companies demand more hours from their existing staffs when they are preparing to hire more workers.

Temporary employment fell 12,000. Businesses generally hire more temporary workers before taking on permanent ones.

The number of unemployed workers rose almost 175,000 to 14.1 million, pushing up the unemployment rate.

There are signs that economy could improve in the second half of the year. Gas prices have come down since peaking in early May at a national average of nearly $4 per gallon. Prices averaged $3.59 a gallon nationwide on Friday, according to AAA.

And manufacturing activity expanded in June at a faster pace than the previous month, according to the Institute for Supply Management. That suggests the parts shortage caused by the March 11 earthquake in Japan is beginning to abate.

More jobs are needed to boost incomes and consumer spending, which fuels 70 percent of the economy. Without more hiring, the economy may not be able to accelerate from its current weak pace of growth.

The government said last month that the economy grew only 1.9 percent in the January-March quarter. Analysts are expecting similarly weak growth in April-June quarter.

The economy is expected to grow at a 3.2 percent pace in final six months of the year, according to an Associated Press survey of 38 economists. But the latest report could prompt some economists to revise their forecasts.

Growth must be stronger to significantly lower the unemployment rate. The economy would need to grow 5 percent for a whole year to significantly bring down the unemployment rate. Economic growth of just 3 percent a year would hold the unemployment steady and keep up with population growth.

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