Unemployment Holds Steady, For Now

It's certainly not good when the economy loses 42,000 jobs in a month. But with many economists expecting worse news, their spin on today's unemployment report was cautiously upbeat.

"We're finally seeing some sort of stabilization out there, in the labor market situation particularly," says Diane Swonk, Chief Economist at Bank One in Chicago.

But according to the Labor Department's unemployment figures for July, released today, the overall jobs picture across the country remains weak. Manufacturing workers once again lost jobs — some 49,000 in all — and temporary service workers suffered another bad month, with employment declining for the 10th month in a row.

Analysts say only a fraction of the 777,000 layoffs announced this year have so far worked their way into the unemployment rate, which is expected to keep rising.

The Ripple Effect

But when Americans lose their jobs the impact is felt throughout the economy. Just ask the merchants who work near the Murray Hill, N.J., headquarters of telecom giant Lucent Technologies, which has plans to reduce its workforce by up to 75,000 jobs this year, including 500 in New Jersey.

"I think it has affected all of our businesses in the area, not only mine," says Maureen Wetzel, owner of a hair salon not far from Lucent headquarters. She adds that her male lunch-hour clients have mostly disappeared.

And lunch is so slow at the nearby Old Glory Restaurant that owner John Sovis has had to lay off workers of his own.

"We used to have two waitresses, now we go with one," says Sovis. "Maybe one bus girl, we used to have two."

And Allen Morgan, the mayor of the small neighboring town of New Providence, who also works as a United Parcel Service driver, says when large businesses take a hit, the whole town feels the pain.

If they're not making the money they used to, they're not going to be able to donate as much as they used to to the town, so it just works itself way down," Morgan says.

Uncertain Economy

Unemployment is still fairly low in the New Jersey area near Murray Hill — as it is around the country. The unknown question, of course, is where the economy is headed.

If its on the road to recovery, some of the thousands of announced layoffs may never take place. But if the economy continues its slide, more layoffs could be ahead.

In an attempt to avoid further economic pain, the Federal Reserve has cut interest rates six times this year, totaling 2.75 percentage points. In theory, that makes capital easier to come by for businesses and should help create more jobs. The Fed's next meeting, on Aug. 21, will be closely watched.

ABCNEWS' Betsy Stark contributed to this report.