Jobs growth stalls, setting back recovery hopes (Reuters)

WASHINGTON (Reuters) – U.S. jobs growth ground to a near halt in June as employers hired the fewest workers in nine months, frustrating hopes the economy would bounce back quickly from a slowdown in the first half of the year.

Nonfarm payrolls rose only 18,000, the Labor Department said on Friday. It was the weakest reading since September and below even the most pessimistic forecast in a Reuters poll of economists.

The dismal report, which showed the unemployment rate climbing to a six-month high of 9.2 percent, stood in stark contrast with recent data on manufacturing and retail sales that had shown activity starting to perk up.

"This report has dashed hopes that the economy was about to accelerate again," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. "It is showing a much bleaker picture than other indicators and we must hope that it is overstating the extent of the slowdown."

Investors, who had positioned for a fairly strong number after a bullish reading on private hiring from payrolls processor ADP, took a dim view of the report and sold U.S. stocks. Global equities retreated from five-week highs and oil prices slumped.

But prices for Treasury debt rallied on views the Federal Reserve would keep overnight interest rates near zero well into next year. The dollar rose against a broad basket of currencies as investors turned risk averse.

Adding to the weak tenor of the report, the department said the economy created 44,000 fewer jobs in April and May than previously thought.

GOVERNMENT BLEEDS JOBS

Government was the biggest drag in June, but the weakness was widespread and could pressure the Fed to consider further action to help the economy. Officials, however, have set a high bar after completing a $600 billion bond-buying program last week.

Still, economists are holding to their belief that the economy will soon pull away from its first-half soft patch and do not see a new recession on the horizon.

Joel Naroff of Naroff Economic Advisors in Holland, Pennsylvania, noted that other recent data has been more positive. "We haven't seen the economy faltering further, instead we have seen the economy coming back," he said.

Motor vehicle manufacturers are ramping up production as a shortage of parts from Japan eases and retailers reported better-than-expected sales in June. In addition, gasoline prices have dropped 38 cents from their lofty levels in May, which should bolster consumer spending.

The employment data dealt a blow to the Obama administration, which has struggled to get the economy to absorb the 14.1 million unemployed Americans. The economy is the top concern among voters and will feature prominently in President Barack Obama's bid for re-election next year.

Two years after the recession ended, employment is still nearly 7 million jobs below its January 2008 peak. At the employment growth pace of the last three months, it would take nearly seven years to replace the lost jobs.

The data could stiffen the resolve of Democrats to push for near-term stimulus as they seek a deal with Republicans to cut the U.S. budget deficit.

In an appearance at the White House, Obama said an impasse in budget negotiations that is blocking a needed increase in the nation's debt limit had contributed to the reluctance by businesses to hire.

"The sooner we get this done, the sooner that the markets know that the debt limit ceiling will have been raised," he said.

Republicans pointed the blame at Democrats.

"Today's report is more evidence that the misguided 'stimulus' spending binge, excessive regulations, and an overwhelming national debt continue to hold back private-sector job creation in our country," House of Representatives Speaker John Boehner said in a statement.

WORKWEEK SHRINKS, EARNINGS WEAK

The private sector added 57,000 jobs last month, while government employment shrank 39,000 -- the eighth straight monthly decline -- as local and state governments continued to wield a budget ax.

Factory payrolls rebounded 6,000 after contracting in May for the first time in seven months, reflecting a step-up in motor vehicle production. Construction employment fell 9,000 last month after declining 4,000 in May.

The length of the average workweek fell to 34.3 hours from 34.4 hours. Employers have been reluctant to extend hours because of the uncertainty surrounding the recovery and the decline suggested they were facing little pressure to increase hiring soon.

Temporary help, another leading indicator of future hiring, fell for a third straight month.

Average hourly earnings slipped a penny, the first decline since November and more evidence that wage-driven inflation is not a risk. Over the past year, earnings have risen only 1.9 percent.

(Editing by Andrea Ricci)

Private hiring jumps, sparking recovery hopes (Reuters)

WASHINGTON (Reuters) – U.S. private companies hired more than double the expected number of workers in June, strengthening views the economy will pick up in the second half of 2011.

A drop in the number of Americans filing applications for unemployment benefits last week also offered hope for the labor market, although they remain too high to signal robust growth.

Payrolls processor ADP said on Thursday private sector employment increased 157,000 after a modest 36,000 gain in May, and beating economists' expectations for a 68,000 rise.

With gasoline prices falling, automakers cranking up production and the decline in house values moderating, the dark clouds over the U.S. economy are starting to lift.

While economists think the economy is pulling out of its first-half slump, they foresee only a modest recovery ahead.

"It's generally a confirmation that the weakness we saw in the May data was more in the way of a bump in the road rather than falling off into some abyss," said David Resler, chief economist at Nomura Securities International in New York.

"The soft patch will prove to be a temporary one, but that doesn't mean we'll be roaring ahead with growth."

The government had been expected to report on Friday that nonfarm payrolls increased 90,000 last month after rising only 54,000 in May, according to a Reuters survey taken last week.

However, the ADP report had some financial institutions, including BNP Paribas and Deutsche Bank, bumping up their forecasts.

"While it is just one month's number, it suggests that maybe what happened was a pause in the economic expansion and as we head into the summer months we're going to pick up some momentum," said Joel Prakken, chairman at Macroeconomic Advisers, joint producers of the ADP employment report.

Initial claims for state unemployment benefits dropped 14,000 to 418,000 last week, the Labor Department said. The decline was more than economists's expectations for a fall to 420,000.

Stocks in Wall Street rose on the data, while government bond prices fell. The dollar was down against a basket of currencies.

Separately, several U.S. retailers reported better-than-expected sales gains in June, a sign they were successful luring shoppers with discounts without undercutting revenue.

Macy's Inc, Costco Wholesale Corp, Target Corp and Gap Inc all beat Wall Street estimates.

Though jobless claims fell last week, they remained above 400,000, a level that is usually associated with a stable labor market, for a 13th straight week.

The four-week moving average of unemployment claims, a better measure of underlying trends, fell 3,000 to 424,750.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 43,000 to 3.68 million in the week ended June 25.

The number of people on emergency unemployment benefits declined 44,183 to 3.26 million in the week ended June 18, the latest week for which data is available. A total of 7.46 million people were claiming unemployment benefits during that period under all programs, down 61,327 from the prior week.

(Additional reporting by Leah Schnurr in New York)

Private hiring jumps, sparking recovery hopes (Reuters)

WASHINGTON (Reuters) – U.S. private companies hired more than double the expected number of workers in June, strengthening views the economy will pick up in the second half of 2011.

A drop in the number of Americans filing applications for unemployment benefits last week also offered hope for the labor market, although they remain too high to signal robust growth.

Payrolls processor ADP said on Thursday private sector employment increased 157,000 after a modest 36,000 gain in May, and beating economists' expectations for a 68,000 rise.

With gasoline prices falling, automakers cranking up production and the decline in house values moderating, the dark clouds over the U.S. economy are starting to lift.

While economists think the economy is pulling out of its first-half slump, they foresee only a modest recovery ahead.

"It's generally a confirmation that the weakness we saw in the May data was more in the way of a bump in the road rather than falling off into some abyss," said David Resler, chief economist at Nomura Securities International in New York.

"The soft patch will prove to be a temporary one, but that doesn't mean we'll be roaring ahead with growth."

The government had been expected to report on Friday that nonfarm payrolls increased 90,000 last month after rising only 54,000 in May, according to a Reuters survey taken last week.

However, the ADP report had some financial institutions, including BNP Paribas and Deutsche Bank, bumping up their forecasts.

"While it is just one month's number, it suggests that maybe what happened was a pause in the economic expansion and as we head into the summer months we're going to pick up some momentum," said Joel Prakken, chairman at Macroeconomic Advisers, joint producers of the ADP employment report.

Initial claims for state unemployment benefits dropped 14,000 to 418,000 last week, the Labor Department said. The decline was more than economists's expectations for a fall to 420,000.

Stocks in Wall Street rose on the data, while government bond prices fell. The dollar was down against a basket of currencies.

Separately, several U.S. retailers reported better-than-expected sales gains in June, a sign they were successful luring shoppers with discounts without undercutting revenue.

Macy's Inc, Costco Wholesale Corp, Target Corp and Gap Inc all beat Wall Street estimates.

Though jobless claims fell last week, they remained above 400,000, a level that is usually associated with a stable labor market, for a 13th straight week.

The four-week moving average of unemployment claims, a better measure of underlying trends, fell 3,000 to 424,750.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 43,000 to 3.68 million in the week ended June 25.

The number of people on emergency unemployment benefits declined 44,183 to 3.26 million in the week ended June 18, the latest week for which data is available. A total of 7.46 million people were claiming unemployment benefits during that period under all programs, down 61,327 from the prior week.

(Additional reporting by Leah Schnurr in New York)

Japan core machinery orders up, recovery under way (Reuters)

TOKYO (Reuters) – Japan's core machinery orders rose in May at the fastest pace in four months in a sign that capital expenditures will stay firm and support the economic recovery as the country rebuilds from a devastating earthquake and tsunami.

The rise in machinery orders, a leading indicator of capital expenditure, supports the Bank of Japan's view that the economy will resume a moderate recovery by autumn as companies restore supply chains and factory output rebounds, suggesting the central bank can afford to keep its easy policy on hold.

But the government maintained its cautious view that machinery orders -- a highly volatile data series -- are only just picking up with some sectors still weak, indicating that any rise in capital spending will be moderate.

Export orders fell in May, suggesting that a softening in global growth, and particularly in Asian economic activity, is clouding the outlook for Japan's export-reliant economy just as it is shaking off supply constraints after the March disaster.

"In addition to reconstruction-related demand, overseas economies, and especially solid demand from Asia, will probably continue to boost corporate capital spending," said Yuichiro Nagai, economist at Barclays Capital in Tokyo.

"But the risks will be whether a slowdown in the global economy accelerates and whether the third extra budget to deal with the quake is compiled by around October or November."

GLOBAL SLOWDOWN A RISK

The 3.0 percent increase in May core machinery orders matched a median market forecast and was the biggest since a 4.0 percent increase in January.

The March disaster so far has not significantly damaged corporate interest in spending, with the BOJ's June tankan survey last week showing big firms plan to increase capital expenditure by 4.2 percent in the current fiscal year that began in April.

"Capital spending is likely to remain one of the bright spots in the economy in the near term, compared to weak components such as consumption, as reconstruction demand and increased public works spending are likely to support," said Takeshi Minami, chief economist at Norinchukin Research Institute.

But there are some reasons to be concerned about the outlook for capital expenditure and production. Japan's Purchasing Managers Index (PMI) for manufacturing slowed slightly in June as new orders stagnated.

PMI indexes for China, Hong Kong and Singapore also showed declines in domestic new orders in June, partly as China takes steps to slow inflation.

The 3.0 percent increase in May machinery orders only offset a 3.3 percent fall in April. It would take a 31.3 percent jump in June for orders to achieve companies' forecast of a 10.4 percent rise in the second quarter, which would be very tough, a government official told reporters on Thursday.

Some auto and machinery manufacturers appeared to be delaying capital spending due to the quake, the official said, suggesting there could be lingering damage from the disaster.

Export orders fell 6.6 percent in May to mark a third straight month of declines, boding ill for Japanese companies that rely heavily on demand from fast-growing Asian economies.

Still, the BOJ is expected to hold off on easing policy further and to revise its assessment of the economy upward at a rate review next week, encouraged by a pickup in factory output and the recovery in business sentiment.

In a sign that wounds inflicted by the March 11 magnitude 9.0 earthquake and deadly tsunami were largely healing, Japan's industrial output jumped in May by the most in nearly 60 years, suggesting a "V-shaped" recovery.

But a political stalemate, as unpopular Prime Minister Naoto Kan clings to office after promising to quit, risks slowing recovery efforts as it could delay budgets to fund disaster relief. The standoff with opposition parties could also delay legislation needed to issue bonds to cover the budget deficit.

(Additional reporting by Stanley White, Editing by Tomasz Janowski)

Japan core machinery orders up, recovery under way (Reuters)

TOKYO (Reuters) – Japan's core machinery orders rose in May at the fastest pace in four months in a sign that capital expenditures will stay firm and support the economic recovery as the country rebuilds from a devastating earthquake and tsunami.

The rise in machinery orders, a leading indicator of capital expenditure, supports the Bank of Japan's view that the economy will resume a moderate recovery by autumn as companies restore supply chains and factory output rebounds, suggesting the central bank can afford to keep its easy policy on hold.

But the government maintained its cautious view that machinery orders -- a highly volatile data series -- are only just picking up with some sectors still weak, indicating that any rise in capital spending will be moderate.

Export orders fell in May, suggesting that a softening in global growth, and particularly in Asian economic activity, is clouding the outlook for Japan's export-reliant economy just as it is shaking off supply constraints after the March disaster.

"In addition to reconstruction-related demand, overseas economies, and especially solid demand from Asia, will probably continue to boost corporate capital spending," said Yuichiro Nagai, economist at Barclays Capital in Tokyo.

"But the risks will be whether a slowdown in the global economy accelerates and whether the third extra budget to deal with the quake is compiled by around October or November."

GLOBAL SLOWDOWN A RISK

The 3.0 percent increase in May core machinery orders matched a median market forecast and was the biggest since a 4.0 percent increase in January.

The March disaster so far has not significantly damaged corporate interest in spending, with the BOJ's June tankan survey last week showing big firms plan to increase capital expenditure by 4.2 percent in the current fiscal year that began in April.

"Capital spending is likely to remain one of the bright spots in the economy in the near term, compared to weak components such as consumption, as reconstruction demand and increased public works spending are likely to support," said Takeshi Minami, chief economist at Norinchukin Research Institute.

But there are some reasons to be concerned about the outlook for capital expenditure and production. Japan's Purchasing Managers Index (PMI) for manufacturing slowed slightly in June as new orders stagnated.

PMI indexes for China, Hong Kong and Singapore also showed declines in domestic new orders in June, partly as China takes steps to slow inflation.

The 3.0 percent increase in May machinery orders only offset a 3.3 percent fall in April. It would take a 31.3 percent jump in June for orders to achieve companies' forecast of a 10.4 percent rise in the second quarter, which would be very tough, a government official told reporters on Thursday.

Some auto and machinery manufacturers appeared to be delaying capital spending due to the quake, the official said, suggesting there could be lingering damage from the disaster.

Export orders fell 6.6 percent in May to mark a third straight month of declines, boding ill for Japanese companies that rely heavily on demand from fast-growing Asian economies.

Still, the BOJ is expected to hold off on easing policy further and to revise its assessment of the economy upward at a rate review next week, encouraged by a pickup in factory output and the recovery in business sentiment.

In a sign that wounds inflicted by the March 11 magnitude 9.0 earthquake and deadly tsunami were largely healing, Japan's industrial output jumped in May by the most in nearly 60 years, suggesting a "V-shaped" recovery.

But a political stalemate, as unpopular Prime Minister Naoto Kan clings to office after promising to quit, risks slowing recovery efforts as it could delay budgets to fund disaster relief. The standoff with opposition parties could also delay legislation needed to issue bonds to cover the budget deficit.

(Additional reporting by Stanley White, Editing by Tomasz Janowski)