US job market cools in July as public payrolls shrink

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WASHINGTON, Aug 4 (AFP): The US economy eked out 92,000 new jobs in July, weaker than expected due to cutbacks in the public sector, and unemployment was essentially unchanged at 4.6 per cent, Labour Department data showed Friday.
It was the weakest gain in nonfarm payrolls since February and fell far short of the Wall Street consensus forecast of 135,000 new jobs. The economy created a revised lower 126,000 jobs in June.
The 4.6 per cent unemployment rate in July, the highest since January, was 0.1 percentage point higher than the forecast 4.5 per cent, where it had remained unchanged in the April-June period.
"The employment report was like Goldilocks's porridge in that it was very mushy," John Lonski, an analyst at Moody's Investors Service, told the news agency.
"It disputes the notion that the US economy is strong. Growth is mild, and the economy is far from hot-it's more like being lukewarm."
The mixed job market report comes before the next meeting of the Federal Reserve's interest-rate policymakers, Tuesday.
The Fed has held its key short-term federal funds rate at 5.25 per cent for 13 months, saying its top priority is to guard against inflationary pressures.
The jobs data added to investor anxiety about the impact of a subprime credit crisis linked to the distressed US housing sector.
On Wall Street, shares dropped on the labour market data and news of a major mortgage lender announcing its immediate shutdown, eliminating more than 6,000 jobs.
The Labour Department also revised slightly lower the nonfarms payroll growth for the two prior months. The economy created 126,000 jobs in June, down from the 132,000 initially estimated, and 188,000 in May, down from 190,000.
Job creation is seen by economists as a more accurate indicator of the health of the jobs market than the unemployment rate. They estimate the economy needs to create between 110,000 and 140,000 new jobs each month to absorb growth in the number of people seeking work.
"Over the first seven months of 2007, job growth has averaged 136,000 jobs per month, compared with an average monthly gain of 189,000 in 2006," said Philip Rones of the Labour Department.
The July report showed job creation was once again led by the service sector in July, up 104,000, particularly in education and health, up 39,000, and business services, up 26,000.
The public sector accounted for the lion's share of job losses, down 28,000. Amid a persistent downturn in the housing market, construction lost 12,000 jobs, while manufacturing dropped 2,000.
"The surprise was government education payrolls that triggered a 28K decline in government jobs," said Stephen Gallagher, an analyst at Societe Generale.
"Private employment rose 120K in July, matching the average monthly gain so far in 2007. Companies are still hiring, a feature that will support consumption and keep the Fed position steady."
Moody's Lonski agreed that the data was skewed by the "non-recurring" drop in government employment.
"On balance, this report indicates that the labour market does not constitute a material inflation risk for the US economy," he said.
The Labour Department report for July showed the hourly wage rose six cents, or 0.3 per cent, from June, to 17.45 dollars, in line with expectations. On a 12-month basis, it was 3.9 per cent higher for the second month in a row.
The average workweek decreased by 0.1 hour to 33.8 hours, seasonally adjusted.
"While hourly earning were up strongly again, not a good sign for the Fed, hours worked were down. Thus, earnings will likely be soft in July," said Joel Naroff, of Naroff Economic Advisers.