U.S. private payrolls rose only modestly in June and overall employment fell for the first time this year as thousands of temporary census jobs ended, showing the economic recovery failing to gain traction.
Private hiring rose 83,000 after increasing only 33,000 the prior month, the Labor Department said on Friday, far short of what would be needed to bring down unemployment.
Total nonfarm employment actually dropped 125,000 — the largest decline since October — as the government laid off 225,000 temporary census workers.
"Companies are still hiring… but the jobs are being created at a slowing pace, and there are just not enough," said Jennifer Lee, senior economist at BMO Capital Markets in Toronto.
The unemployment rate fell to 9.5%, the lowest level since July, but that was only because a flood of workers left the labor force.
Economists polled by Reuters had expected private employment to grow by 112,000 jobs, although some had scaled back their projections in recent days. The jobless rate was expected to edge up to 9.8% from 9.7% in May.
U.S. stock indexes rose modestly at the open amid relief the report was not as bad as some had feared, while Treasury debt prices slipped.
A string of disappointing reports on consumer spending, the housing market and factory activity has fueled fears that the economy is slipping back into a recession. The Commerce Department said on Friday that factory orders in May took their biggest tumble since March of last year.
The jobs data, however, signaled continued growth, albeit sluggish.
"No double dip (recession) but no rapid recovery either," said John Silvia, chief economist at Wells Fargo in Charlotte, North Carolina.
ELECTION-YEAR POLITICS
Public unhappiness with the economy, especially after a roughly $800 bln package of spending and tax cuts, is eroding President Barack Obama's popularity. Obama, who has has called job creation his No. 1 priority, has tried to put the blame on policies of the previous administration.
"Make no mistake, we are headed in the right direction, but … we're not headed there fast enough for a lot of Americans," Obama said at Andrews Air Force Base in Maryland. "We're not headed there fast enough for me either."
With voters in an anti-Washington, anti-incumbent mood, failure to make headway in putting back to work the more than 8 million Americans who lost jobs during the recession could cost the Democratic Party dearly in the November mid-term elections.
Payrolls in the dominant services sector rose 91,000 last month after increasing 20,000 in May. Temporary help employment rose 20,500, while retail hiring fell 6,600.
In the goods-producing sector, employment fell by 8,000, pulled down by declines in construction. Home building activity has dropped sharply since late April when a tax credit for homebuyers expired.
Employment in the factory sector, which has led the recovery, rose by just 9,000 after a 32,000 gain in May.
With unemployment stubbornly high, household spending has turned sluggish in recent months, threatening to create a vicious cycle that stock market investors and some analysts worry could tip the economy back into recession.
"We are in a difficult situation. I don't think there is political will to have another stimulus program and even if we did I am not sure people feel it would be that effective," said Stephen Bronars, a senior economist at Welch Consulting in Washington.
The Federal Reserve is also in a bind. It has held benchmark overnight interest rates close to zero since December 2008 and has pumped more than $1 trln into the economy.
Fed officials believe a sustainable recovery has taken hold, but are watching cautiously and financial markets do not expect the central bank to raise rates until the middle of next year.
The average workweek edged down to 34.1 hours from 34.2 hours in May, and average hourly earnings also fell. Shrinking paychecks could pose a risk to consumer spending.
