June unemployment rate jumps to nine-year high of 6.4 percent

Reports sends stockmarkets lower

By Leigh Strope

Associated Press

WASHINGTON -- The nation's unemployment rate soared to a nine-year high of 6.4 percent in June, smashing the hopes of job seekers anxious for paychecks in a sagging economy.

Businesses cut 30,000 more positions from their payrolls, marking a fifth straight month without job growth, the Labor Department reported Thursday.


"This painful job market is a problem," said Bill Cheney, chief economist at John Hancock Financial Services. "In fact, it's the big one."

Economists worry that if the hiring outlook remains bleak, the tepid recovery will cool further and thrust the country back into recession.

"We can't continue on much longer," said Mark Zandi, chief economist at "An economy that can't create jobs can't grow by any measure."

Markets react

The report sent stocks lower on Wall Street, which closed early for today's holiday. The Dow Jones industrial average was down 72 points and the Nasdaq fell 15 points.

The jobless rate was up from 6.1 percent in May, the largest monthly increase since the Sept. 11, 2001, terrorist attacks. Economists had expected a more modest rise of 6.2 percent. The last time the rate was higher was in March 1994, when the country was emerging from the last recession.

Nearly a million people were added to the unemployment rolls in the past three months, and 2 million people have been unemployed for 27 weeks or more. The average duration was nearly 20 weeks, a 20-year high.

Voters without jobs could pose problems for President Bush in his re-election bid next year, and Democrats want to exploit what they view as a big vulnerability for Republicans. The U.S. unemployment rate was just 4.1 percent when Bush took office in January 2001.


"It's obvious that when it comes to reviving our flagging economy, this administration just doesn't get it," said Sen. Jon Corzine, D-N.J., chairman of the Democratic Senatorial Campaign Committee. "Millions of Americans have lost their jobs while the president and his administration keep pushing the same failed policies."

The administration argues that the tax cuts recently passed by the GOP-led Congress are starting to take effect and will bolster job prospects.

Feeling the effects

"Its effects will be felt by America's working families, seniors and small business owners later this month as they begin receiving tax rebates and larger paychecks," said Labor Secretary Elaine Chao. "As this stimulus builds momentum, we expect to see more new jobs created and more out-of-work Americans receiving a paycheck again."

White House spokesman Ari Fleischer said that while the economy experienced a "short and shallow recession, we are also an economy that is having a slow recovery."

A major factor in the rate increase last month was more people resuming their searches for work. Optimism about an economic rebound brought more than 600,000 people back into the labor pool.

Rising unemployment rates on the verge of recovery aren't unusual. Economists think the rate could climb even higher in coming months. What concerns them is that not only are jobs not being created to accommodate the increase in jobseekers, jobs aren't being created in significant numbers at all.

"There should be a lot of job growth in a typical June, and this was definitely below par," Cheney said. "Regardless of the reasons, there aren't enough jobs."


Businesses remain reluctant to hire new workers and make big spending commitments, waiting to see if the economy gains steam.

In fact, layoffs haven't subsided. New claims for unemployment benefits jumped to 430,000 last week, a separate report showed. That was up by a seasonally adjusted 21,000 from the previous week's revised 409,000 claims.

New claims have now remained above the 400,000 mark for 18 straight weeks -- a level associated with a stagnant job market. The more stable, four-week moving average of claims, which smooths out weekly fluctuations, dropped to 425,000. That was the lowest level since April 5.

Manufacturers led the payroll cuts last month, with 56,000 jobs lost. Since July 2000, the nation's factories have shed 2.6 million jobs.

That sector has been the weakest link in the economy's ability to return to full speed. Slack demand at home and abroad and competition from a flood of imports have throttled back production, prompting layoffs.

Construction jobs helped offset manufacturing losses somewhat last month, with the fourth straight gain in hiring. The industry has added 101,000 jobs since February, reflecting strength in residential building from record-low mortgage rates.

Other bright spots in the report were in health care and leisure and hospitality, which posted modest hiring gains last month.

An increase in temporary employment services also was a positive sign. That industry is closely watched by economists because it can signal new jobs. Companies generally take on temporary help before committing to permanent workers.


Some economists think the report opens the door to another Federal Reserve cut on Aug. 12.

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