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Unemployment rose in June

U.S. manufacturers continue to suffer heavy job losses

SHARE Unemployment rose in June

WASHINGTON — The nation's unemployment rate rose to 4.5 percent in June as manufacturers continued to suffer heavy job losses and demand for workers in service industries fell to the lowest level in 10 months.

The Labor Department reported Friday that the jobless rate rose 0.1 percentage point from a 4.4 percent rate in May. The 4.5 percent level matched the unemployment rate in April, with both months representing the highest level the jobless rate has reached in the yearlong economic slowdown.

Businesses slashed payroll for the second time in three months, cutting 114,000 jobs in June, after a reduction of 165,000 jobs in April. Payrolls had only edged up by 8,000 in May.

On Wall Street, the weak unemployment report, along with corporate warnings, added to investors' anxiety. The Dow Jones industrials were down around 130 points and the NASDAQ was off around 56 points in the first half-hour of trading.

To stave off recession, the Federal Reserve has cut interest rates six times this year. The most recent cut, by a quarter-point, came last week. Each of the other five were bolder half-point moves.

"The data show the economy is still very weak and leave the door open for the Fed to cut rates again," said Gary Thayer, chief economist at A.G. Edwards & Sons. "We don't think the Fed will move between meetings because with gasoline prices coming down and tax rebates starting to be mailed out . . . I think the Fed is going to be a little more cautious here."

Economists are predicting that final figures will show that the economy barely grew in the recently ended April-June quarter. Still, many are hopeful that growth will begin to rebound this summer as the Fed's credit-easing campaign and Congress' tax-refund checks take hold.

Labor Secretary Elaine Chao called the economy stable and said it is "poised to take off after tax-rebate checks begin to arrive at the homes of American taxpayers this summer and fall."

Even if this optimistic forecast proves correct, the unemployment rate, which is a lagging economic indicator, is expected to continue rising, topping 5 percent by the end of the year.

While this jobless rate would still be low by historical standards, it would mark a sharp deterioration from the three-decade low of 3.9 percent hit in several months last year.

Job losses in June were led by a sharp decline of 113,000 jobs in manufacturing, which has suffered 785,000 job losses over the past 12 months, with three-fourths of those losses occurring since January.

For June, the industries suffering the biggest losses were computer-related. Electronic equipment makers cut 31,000 jobs. Industrial machinery makers cut 22,000 positions.

Even the service sector, where most Americans work, was weak in June, managing an increase of only 5,000 jobs, the weakest showing since an outright loss of 15,000 jobs in August 2000.

Much of the weakness was centered in firms providing temporary workers, which suffered a ninth consecutive monthly decline in June. The temporary help industry has lost a total of 379,000 jobs in the last nine months.

The weakness at temp firms, hotels and amusement parks was offset slightly by strong job gains in health services and engineering.

Some economists fear that if the employment climate worsens seriously, consumers — who have been keeping the economy afloat — might sharply cut back spending and tip the country into recession.

This fear so far has not been realized as the consumer sector has been the main source of strength keeping the economy afloat. Just this week Detroit reported that auto sales rebounded in June.

Treasury Secretary Paul O'Neill said Thursday that the strength in auto sales and housing gave him hope that the economy will recover in coming months, helped by President Bush's tax cut and the series of rate reductions by the Federal Reserve.