American employers added jobs at the slowest pace in nine months in June and the unemployment rate unexpectedly climbed to 9.2 percent, sending global stocks sliding on concern the world’s biggest economy is faltering.
Employers increased payrolls by 18,000 workers, less than the most pessimistic forecast in a Bloomberg News survey of economists, which called for growth of 105,000. The increase followed a 25,000 gain that was less than half the initial estimate. Hiring by companies was the weakest since May 2010.
“This is a very fragile state for the U.S. labor market,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston. “It suggests that the overall recovery remains somewhat tenuous.”
Treasuries climbed as the report called into question Federal Reserve forecasts for an economic rebound in the second half of the year and raised the odds of additional stimulus. The increase in unemployment also poses a fresh challenge for President Barack Obama as he seeks to keep the economy growing while also negotiating budget cuts with congressional leaders.
Estimates of the 85 economists surveyed by Bloomberg for overall payrolls ranged from increases of 40,000 to 175,000. (See related commentary.)
The Standard & Poor’s 500 Index fell 0.7 percent to 1,343.81 at the 4 p.m. close of trading in New York, after falling as much as 1.4 percent. The yield on the benchmark 10-year note dropped to 3.02 percent from 3.14 percent late yesterday.
Forecast to Hold
The unemployment rate, which rose in June to the highest level this year, was forecast to hold at 9.1 percent, according to the survey median. Estimates ranged from 8.9 percent to 9.2 percent.
Obama, speaking at the White House Rose Garden, said the report shows that “we still have a long way to go and a lot of work to do to give people the security and opportunity they deserve.”
The report adds urgency to talks on July 10, when Obama and eight congressional leaders from both parties will try again to find a compromise on cutting deficits and raising the government’s $14.3 trillion debt ceiling to head off a default on U.S. debt obligations in early August.
“The sooner that the markets know that the debt limit ceiling will have been raised and that we have a serious plan to deal with our debt and deficit, the sooner that we give our businesses the certainty that they will need in order to make additional investments to grow and hire,” Obama said.
Fed officials have said the slowdown in economic growth in the first and second quarters partly reflected temporary factors. Manufacturers were hurt by supply disruptions in the aftermath of the earthquake in Japan, while a surge in gasoline expenses limited spending on non-essential items by American consumers.
“This increases the probability of another round of quantitative easing,” said Jason Schenker, president of Prestige Economics LLC in Austin, Texas, referring to large-scale asset purchases. “If additional stimulus is required, the Fed may be weighing its options.”
Companies reducing staff include Lockheed Martin Corp., the world’s largest defense contractor. Bethesda, Maryland-based Lockheed on June 30 said it plans to cut about 1,500 employees. McLean, Virginia-based Gannett Co., the publisher of 82 newspapers including USA Today, also announced last month it is eliminating about 700 jobs.
Some employers are more optimistic.
Billionaire Warren Buffett said he is wagering on continued economic expansion and doesn’t expect a second recession.
“I would bet very heavily against that,” Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., told Bloomberg Television’s Betty Liu on the “In the Loop” program after today’s data. “How fast the recovery will come, I don’t know. I see nothing that indicates any kind of a double dip.”
Berkshire Hathaway added about 3,000 jobs last year after cutting more than 20,000 positions in 2009. The Omaha, Nebraska-based company employed about 260,000 people at units from insurance and shipping to consumer goods and energy, Berkshire said in February.
Emmanuel Saujet, chief executive officer of New York-based International Cosmetics and Perfumes Inc., said his luxury cosmetics and fragrance company, which employs about 75 people in North America, is hiring to keep up with growing demand.
“We have probably expanded our full-time staff by about one-fifth since the beginning of the year,” Saujet said in a telephone interview.
The jobless rate rose even as the participation rate declined to 64.1 percent, the lowest since March 1984. The Labor Department’s survey of households, used to calculate the unemployment rate, showed a 445,000 decrease in employment and a 173,000 increase in unemployment.
In that survey, the government calls 60,000 households and asks people if they are working or looking for a job. The survey includes the self-employed, farm workers and domestic workers. Those people are not counted in the establishment survey used to calculate the payroll figures.
Private hiring, which excludes government agencies, rose 57,000 last month after a 73,000 gain. It was projected to rise by 132,000, the survey showed.
Factory payrolls climbed 6,000 in June after a 2,000 decline in the previous month.
Employment at service-providers increased 14,000 in June, the least since a decline in September. Construction employment fell 9,000 workers, while retailers added 5,200 workers.
Boyd Martin Construction LLC, a commercial construction company in Las Vegas, has cut its employment in half to 20 employees from 40 in 2006 as demand for all types of work has waned.
“When housing went away it took away a chunk of the entire economy and that has affected the entire construction sector,” said owner Boyd Martin, 48.
Government payrolls declined by 39,000 in June, the eighth straight decrease. Employment at state and local governments fell 25,000.
Average hourly earnings dropped 1 cent to $22.99, today’s report showed. The average work week for all workers decreased to 34.3 hours, from 34.4 hours the prior month.
The so-called underemployment rate -- which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking -- increased to 16.2 percent from 15.8 percent.
The number of temporary workers decreased 12,000. Payrolls at temporary-help agencies often slow as companies seeing a steady increase in demand take on permanent staff.
Recent figures had signaled the economy was starting to perk up after slowing in the first half of the year. An Institute for Supply Management report last week showed manufacturing unexpectedly accelerated in June.
There are other bright signs. Consumer borrowing in the U.S. rose in May for the eighth straight month, led by a boost in credit card use and student loans, a Fed report today showed.
Credit increased by $5.08 billion after a revised $5.67 billion gain in April. Economists projected a $4 billion increase, according to the median forecast in a Bloomberg survey.
Policy makers “expect the unemployment rate to continue to decline but the pace of progress remains frustratingly slow,” Fed Chairman Ben S. Bernanke said at a news conference after the central bank’s June 21-22 monetary policy meeting.
The economy expanded at a 1.9 percent annual rate in the first three months of the year, and economists surveyed by Bloomberg from June 28 to July 7 forecast second-quarter growth of 2 percent. In the final three months of 2010, the economy grew 3.1 percent.
Lack of faster progress in the labor market and in the economic recovery, which started in June 2009, has taken a toll on Obama’s approval ratings. Since he took office in January 2009, unemployment has increased from 7.8 percent and the economy has lost 2.5 million jobs.
By a 44 percent to 34 percent margin, Americans say they believe they are worse off than when Obama took office, according to a Bloomberg National Poll conducted June 17-20.