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U.S. Employers Shed Jobs, Unemployment Remains at 9.5%

Source: WSJ

Posted on 06 Aug 2010

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Further signaling that the economic recovery may be losing momentum,the U.S. economy shed more jobs than expected in July while the unemployment rate held steady at 9.5%.

Nonfarm payrolls fell by 131,000 last month as the rise in private-sector employment was not enough to make up for the government jobs lost, the U.S. Labor Department said Friday. Only 71,000 private-sector jobs were added last month while 143,000 temporary workers on the 2010 census were let go.

Economists polled by Dow Jones Newswires were expecting total nonfarm payrolls to drop by a smaller 60,000 in July.

The June data were revised down significantly. Payrolls fell 221,000 that month, more than the 125,000 drop previously reported, as only 31,000 jobs were added in the private sector.

Taking into account revisions to prior months this year, the U.S. economy added an average of less than 100,000 jobs a month in the first seven months of 2010, a level that isn't strong enough to bring unemployment down.

The jobless rate, which is calculated using a separate household survey, held steady at 9.5% in July. Economists were expecting it to edge higher to 9.6%.

After the worst recession in decades, the recovery that began in July 2009 has recently been losing momentum, but it's hard to say if it's just a temporary slowdown or if the economy could start to contract again. The Federal Reserve may consider taking steps to support the economy when officials meet next Tuesday. Some worry that with unemployment still so high and consumer prices recently dropping, the U.S. economy runs the risk of falling into a Japan-like deflationary trap of very slow growth and falling prices.

U.S. Treasury prices rose, pushing two-year yields down to a record low, and the U.S. dollar was pummeled as the jobs report stoked fears about the strength of the economy. Market expectations grew that the Fed could move to further support the economy.

"The disappointing report today may force the Fed back into action," said Chris Rupkey, economist at Bank of Tokyo-Mitsubish. He added Fed officials "risk their own credibility by doing so as they are out of bullets with rates having been pushed to zero way back in December 2008."