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U.S. jobs picture grim, housing struggles

2/07/2008 - 15:55

By Burton Frierson and Steven C. Johnson

NEW YORK (Reuters) - U.S. private employers slashed 79,000 jobs in June while planned layoffs at U.S. firms rose nearly 50 percent above year-ago levels, according to data that may spell bad news for a government payrolls report this week.

Wednesday's data brought some brighter news as well, however, with a boost in demand for aircraft lifting new orders at U.S. factories by an unexpectedly large 0.6 percent in May.

Also, U.S. mortgage applications rose last week with help from lower home loan rates, though the bounce follows a 6-1/2-year low the prior week.

Late payments on U.S. home equity lines of credit, however, rose to a 21-year high in the first quarter, given continued housing market stress and weakness in the economy, the American Bankers Association said.

On the labor front, private-sector employers' decisions to cut 79,000 jobs in June made for the largest decline since November 2002, according to a report by ADP Employer Services.

The data surprised financial markets, which were braced for a more modest 20,000-job loss. In May, the private sector added 25,000 jobs, revised down from an initial estimate of 40,000.

"The June ADP report offered another weak reading for employment. It looks like we're still seeing job cuts as economic growth is very weak," said Gary Thayer, senior economist at Wachovia Securities in St. Louis, Missouri.

Some feared the news does not bode well for the government's more comprehensive jobs report, which is due on Thursday and is the main event on the monthly data calendar.

If recent history is any guide, said Ian Shepherdson, chief U.S. economist at High Frequency Economics, the ADP report could signal an astounding drop of 200,000 jobs in the official payroll numbers, much more than the fall of 60,000 that economists predicted in a Reuters poll.

"Expect a weak official (payrolls) report tomorrow," said Shepherdson, who is based in Valhalla, New York.

But Joel Prakken, chairman of Macroeconomic Advisers LLC, said the unexpectedly large decline in private sector jobs does not ensure a similar downside surprise in the government data.

"I'm expecting tomorrow a number like minus-60 (thousand)," Prakken told Reuters. He said recent months when payrolls data was gloomier than ADP's may have been "a statistical vagary."

Macroeconomic Advisers jointly develops the report with ADP Employer Services.

Economists polled by Reuters are looking for the unemployment rate to ease to 5.4 percent after spiking in May to 5.5 percent, its highest in more than 3-1/2 years.

On Wall Street, stock futures pared gains after the ADP report but stocks <.DJI> recovered much of that ground on the rise in factory orders, while the dollar fell against the euro. Safe-haven government bonds, which perform better in times of economic malaise, rose as investors worried about consumers' ability to keep spending as firms shed jobs.

LAYOFFS AND FACTORY ORDERS

Employment consulting firm Challenger, Gray & Christmas Inc said planned layoffs at U.S. companies fell 21 percent in June from May's 29-month high.

But they were 47 percent above June 2007, while total second-quarter cuts were the highest since late 2005. Planned job cuts at U.S. companies totaled 81,755 in June, compared with 103,522 in May and 55,726 in June 2007, Challenger said.

In other labor market news, the Monster Employment Index edged down in June as U.S. online recruitment eased slightly following the early springtime hiring period.

The news from the manufacturing sector was a bit better, with the Commerce Department reporting new factory orders rose 0.6 percent in May, though economists said that was largely the result of higher oil prices pushing up the value of orders.

The data comes a day after the Institute for Supply Management said U.S. manufacturing expanded in June for the first time in five months.

"It's great every time you see something positive like this come out," said Edward Bretschger, director of equity sales and trading at Calyon Securities in New York. "It shows there's light out there and not everything is as bad as predicted."

HOMES

There was some good news from housing, too, with the Mortgage Bankers Association reporting its seasonally adjusted application index rose 3.6 percent to 477.7 in the week ended June 27, as 30-year fixed mortgage rates slipped 0.06 percentage point from a 10-month high to 6.33 percent.

The U.S. housing market, caught in the worst downturn since the Great Depression of the 1930s, has been stuck in a vicious cycle, even through the normally buoyant spring sales season.

Until prices show signs of stabilizing, many economists see little chance that home sales will rebound meaningfully.

In a quarterly report on consumer borrowing, the American Bankers Association said the percentage of home equity lines more than 30 days past due rose to 1.1 percent from 0.96 percent the prior quarter. That rate is the highest since the ABA started collecting such data in 1987.

(Additional reporting by Ellen Freilich in New York and Joanne Morrison in Washington; Editing by James Dalgleish)


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