Cost cuts prompt job losses

By Bob Willis  |   2008-7-4  |     NEWSPAPER EDITION

United States employers cut jobs in June for a sixth consecutive month as soaring fuel prices and a slowing economy forced companies to pare costs.

Payrolls fell by 62,000 workers last month, more than forecast, after a 62,000 drop in May that was greater than initially reported, the Labor Department said yesterday in Washington. The jobless rate remained at 5.5 percent after jumping in May by the most in two decades.

The loss of jobs, combined with record gasoline prices and tumbling home values, makes it more likely consumer spending will falter once the lift from the tax rebates fades. A weakening labor market reduces the odds the Federal Reserve will raise interest rates in coming months to stave off inflation.

"As long as the consumer is facing these headwinds, it's going to be very tough for a major turnaround in employment growth," Kathleen Stephansen, head of global economics at Credit Suisse Holdings USA Inc in New York, said before the report. "There is very little room for the Fed to do anything. The Fed is not in a position to cut rates, nor is it in a position to hike rates."

The June figures brought total job losses for the first half of 2008 to 438,000. In 2007, the economy generated 91,000 jobs a month on average. Revisions subtracted 52,000 from payroll figures previously reported for April and May.

Economists had projected payrolls would drop by 60,000 after a previously reported 49,000 decline the prior month, according to the median of 81 forecasts in a Bloomberg News survey. Estimates of job losses ranged from 20,000 to 130,000.

Trends in jobs, sales, production and incomes, in addition to changes in gross domestic product, are the criteria used by the National Bureau of Economic Research to determine when contractions begin and end. The Cambridge, Massachusetts, group is the arbiter of US recessions.

"Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters," Fed policy makers said last week in announcing they were keeping the benchmark rate unchanged.