U.S. Unemployment Rises to 6.4%, a 9-Year High

The nation produced more fired workers than economic fireworks last month as the unemployment rate shot to a nine-year high of 6.4% and payrolls shrank by 30,000 jobs, the Labor Department said Thursday.

The June payroll decline extended the economy’s job-losing streak to five months. Employers have dumped 394,000 workers since February and 2.6 million since the March 2001 start of the latest recession.

The jump in the unemployment rate from May’s 6.1% to 6.4% in June was the biggest monthly increase since the September 2001 terror attacks and surprised analysts, who had predicted little or no change. The last time the rate was higher was in April 1994.

The new figures diminished hopes -- which had been on the rise -- that tax cuts coupled with interest rate reductions engineered by the Federal Reserve would propel the economy to a quick comeback.

“It’s not a pretty picture for a recovery,” Los Angeles economic consultant Ted Gibson said. “To keep losing jobs when most people think the recession ended a year and a half ago is really unprecedented.”

The June numbers did include some hints of improvement. Part of the reason for the rise in the unemployment rate was an increase in the number of people looking for work, sometimes an early indicator of an economic rebound. The jobs report said that the civilian labor force grew by 611,000 people last month. In addition, hiring of temporary help, another harbinger of recovery, was up by 38,000.

But Thursday’s numbers, coming as the country prepared to celebrate the Fourth of July, set off a political uproar with Democrats blasting President Bush over the economy’s performance while the administration generally sought to avoid the subject.

“The Republicans’ multitrillion-dollar failed economic policy is one of the greatest disasters for working Americans in a decade,” said Sen. Jon Corzine (D-N.J.), chairman of the Democratic Senatorial Campaign Committee.

Countered outgoing White House Press Secretary Ari Fleischer: “Tax cuts have helped to create jobs and promote growth in the economy.”

Among other positive signals Thursday, an industry group reported that the nation’s huge service sector expanded for a third straight month. The Institute for Supply Management’s index for non-manufacturing companies rose to 60.6, its highest level since September 2000.

But analysts said the problem with such hints of promise is just that -- they remain only hints, two months after the end of the U.S.-led war with Iraq lifted the cloud of doubt over the economy and after consumers and companies knew that another round of tax cuts was on the way in the second half of the year.

“There are great expectations for a turnaround in the economy, but there’s nothing in these numbers to suggest that it’s turned yet,” said Mark Zandi, chief economist of West Chester, Pa.-based Economy.com.

“We’re still in a very fragile state that threatens to come unraveled if anything goes wrong,” he said.

Despite signs of improvement, there was plenty of evidence of economic pain in the new report. The unemployment rate for African Americans jumped a full point to 11.8%. The rate for Latinos rose two-tenths of a point to 8.4%.

The median duration of unemployment -- the minimum length of time that half of those who have lost their jobs have been out of work -- jumped to 12.3 weeks, the longest it has been since the government started keeping tabs in 1967. Generally speaking, the longer people are unemployed, the more it costs their families and the harder it is to find new work.

Average hourly wages rose 3 cents to $15.38 in June, but the pace of growth has slowed. Neither the length of the average workweek nor the amount of manufacturing overtime worked budged during the month. Both usually rise early in recoveries.

In a separate report Thursday, the Labor Department said that initial claims for unemployment benefits unexpectedly jumped 21,000 last week to 430,000.

Investors reacted to the latest signals from the economy with a sort of split decision Thursday.

Stocks lost ground as some market players saw in the employment report a suggestion that the recovery could stall. The Dow Jones industrial average slid 72.63 points, or 0.8%, to close at 9,070.21. The broader Standard & Poor’s 500 index fell 8.05, or 0.8%, to 985.70, and the Nasdaq composite index slid 15.27, or 0.9%, to 1,663.46.

By contrast, bond traders focused on the service sector report and concluded that the recovery is gaining steam. Such a development could threaten the value of their holdings by causing inflation.

Traders reacted by pushing the price of a bellwether 10-year Treasury note down, lifting its yield, or market interest rate, to 3.65% from 3.54%. As recently as three weeks ago, the rate was at a 45-year low of 3.11%.

The lion’s share of June’s job losses was in manufacturing, which shed 56,000 jobs last month. Since hitting its most recent peak three years ago, manufacturing employment has plunged by 2.6 million jobs. Analysts predicted that many of those positions would not return when the economy finally recovered.

Partially offsetting the latest manufacturing losses was new hiring by the health and social assistance industries, which added 35,000 workers last month and 306,000 over the last year.

The construction industry also was hiring. Since February, construction companies have added 101,000 workers to keep up with the housing boom driven by low interest rates.

Information technology payrolls were little changed during the month. The industry was battered by the 2001 recession and has lost 434,000 jobs since the start of the downturn.

The U.S. economy grew at an annual rate of slightly more than 1% in the final quarter of last year and the first quarter of this year, and did not do much better in the just-completed second quarter.

But the consensus among economists is that with the latest tax cut slated to kick in this month and with the Fed having just trimmed its key benchmark interest rate to a 45-year low of 1%, the time is ripe for faster growth.

Yet analysts acknowledge that growth will have to be at a 3.5% annual pace or better to lift employment and bring down the jobless rate. That’s something the economy has yet to be able to sustain so far this decade.