Payrolls fall less than expected; July unemployment rate drops

WASHINGTON -- Employers shed 247,000 jobs in July, fewest in nearly a year, bolstering forecasts for a third-quarter economic recovery.

Some economists, however, say the numbers were skewed by an unusual flurry of job additions in the automobile industry.

The unemployment rate fell to 9.4% from 9.5% in June, as 422,000 Americans left the labor force, including discouraged workers who gave up their job searches, according to the Bureau of Labor Statistics.

The 247,000 payroll jobs lost were the fewest since last August and handily beat analysts' projections of about 325,000. Manufacturing, finance and professional services cut substantially fewer workers than expected.

"It's definitely encouraging," says UBS economist Jim O'Sullivan. "It's almost an average recession number, but coming from a deep recession, we're at least moving in the right direction. You have actually seen a turning point."

Along with a bottoming in home sales and a rising stock market, among other indicators, moderating job losses are "consistent with an economy heading toward" a recovery in the third quarter, O'Sullivan says.

"Today, we're pointed in the right direction," President Obama said in brief remarks at the White House hours after the report was released. "While we've rescued our economy from catastrophe, we've also begun to build a new foundation for growth."

Even so, Obama said: "We have a lot further to go. As far as I'm concerned, we will not have a true recovery until we stop losing jobs." He also said he won't rest until "every American that is looking for a job can find one."

"We have a steep mountain to climb and we started in a very deep valley."

Earlier, presidential spokesman Robert Gibbs told reporters there remains plenty of work to do despite the upbeat report.

He said the report "is more evidence that we have pulled back form the edge" of a depression. At the same time, he said Obama still believes the unemployment rate, which is a lagging indicator, will hit 10% later this year.

About 14.5 million Americans were out of work last month and 6.7 million jobs have been lost since the recession began in December 2007. Yet the 331,000 average monthly job losses the past three months is nearly half the 645,000 monthly losses from November through April.

Other encouraging signs: The so-called underemployment rate, which includes the unemployed, people working part-time although they want full-time work, and those who stopped looking for work, dipped to 16.3% from 16.5%. The average work week edged up to 33.1 hours from a record low 33 hours. And average hourly wages rose to $18.56 from $18.53 in July.

Wachovia economist Mark Vitner says the relatively modest number of job losses in July was skewed by auto factories' moves to restart production a month earlier than usual, after closing for several months because of lackluster sales. Auto manufacturers gained about 28,000 workers after shedding 26,000 in previous months, and ripples likely affected other industries, such as steel-makers, he says.

"This was a good report, but there's less improvement than meets the eye," Vitner says.

He says job losses could return to higher levels in August, when automakers won't post their normal job additions and some employers cut staffing in response to a recent increase in the federal minimum wage.

A discouraging sign. The portion of unemployed workers out of work 6 months or more jumped to 33.8% from 29%, and the average duration of unemployment moved up to 25.1 weeks from 24.5 weeks.

The picture among specific industries was mixed in July. Manufacturers cut 52,000 jobs, less than half the 136,000 jobs lost in June, thanks partly to the auto sector. Some 13,000 jobs were lost in the financial sector, vs. 27,000 in July. And professional and business services such as legal and accounting lost 38,000 jobs, vs. 118,000 in June.

In a possibly encouraging signal, temporary services shed just 10,000 jobs, vs. 37,000 the previous month. Companies often hire temporary workers first when business begins to pick up.

But the construction industry lost 76,000 jobs, retail shed 44,000 and transportation and warehousing eliminated 22,400, all about the same or more than June.

The government reported last week that the economy shrank at just a 1% annual rate from April to June, strongest signal yet that the recession may be ending.

When the economy is healthy, employers add around 125,000 jobs a month just to keep the unemployment rate stable. To get the jobless rate down would take stronger job growth — at least 200,000 jobs a month. Economists say it might take until 2013 to drive down the unemployment rate to 5%.