Payrolls Probably Fell, Factories Slowed: U.S. Economy Preview

Payrolls Probably Fell, Factories Slowed: U.S. Economy Preview


June 29 (Bloomberg) -- U.S. employers probably cut jobs in June for a sixth consecutive month, while manufacturing contracted at a faster pace, signaling the expansion is still at risk, economists said before reports this week.

Payrolls shrank by 60,000 workers, according to the median estimate of economists surveyed by Bloomberg News before the Labor Department's report on July 3. The unemployment rate may have fallen after jumping last month by the most in two decades.

Mounting job losses, record gasoline prices and tumbling home values have crushed consumer confidence, raising concern that spending will retrench once the lift from the tax rebates fades. Businesses are also purchasing less equipment as fuel costs soar, prompting factories to scale back.

``Job growth is going to be non-existent for the next six months,'' Maria Fiorini Ramirez, president of MFR Inc. in New York, said in an interview with Bloomberg Television. ``The economy is sort of staggering along.''

The projected drop in payrolls would follow a decline of 49,000 in May that brought the number of jobs lost so far this year to 324,000. Factory payrolls probably shrank by 30,000, economists forecast, after a 26,000 decline the prior month.

The jobless rate this month probably fell to 5.4 percent from 5.5 percent in May, according to the survey median. The rate jumped a half percentage point last month, the most since February 1986.

The report will be released on a Thursday rather than the customary first Friday of the month because of the Fourth of July holiday in the U.S.

Factory Slowdown

Manufacturing, which accounts for about 12 percent of the economy, probably shrank for a fifth month in June, the Institute for Supply Management's factory index may show on July 1. The gauge probably fell to 48.6 from 49.6 the prior month, according to economists polled. A reading less than 50 signals contraction.

``Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters,'' Federal Reserve policy makers said last week in announcing they were keeping the benchmark rate unchanged for the first time since August. Central bankers signaled inflation was an increasing threat.

Oil prices that topped $142 a barrel last week are hammering manufacturers. Carmakers, with little relief in sight, are paring output or shifting production to more fuel-efficient vehicles. General Motors Corp. said last week it plans to reduce North American truck production by an additional 170,000 units, while adding 47,000 units of car and crossover output.

Not There Yet

``Our mix of inventory isn't quite where we need it to be yet,'' Mark LaNeve, GM's North American marketing chief said in a conference call with analysts last week. ``We have to continue to make these adjustments because it's critical that we respond to the vehicle dynamics that we are seeing and where consumers are shopping.''

The economy grew at a 1 percent pace in the first quarter, following a 0.6 percent gain in the final three months of 2007, making for the weakest six months of growth in five years.

The outlook this quarter improved last week after the Commerce Department reported consumer spending rose more than forecast in May. Americans used the money from tax rebates to buy furniture, clothes and electronics after filling their autos' gas tanks.

About $48.1 billion in rebate checks were distributed in May and a total of $78.3 billion went out through June 27, according to figures from the Treasury Department. Almost all of the tax rebates will be sent out by the second week of July.

Slump in Confidence

Most economists predict the gains in spending won't last beyond the third quarter, as rising joblessness and the jump in fuel costs continue to hurt consumers. Sentiment among Americans fell in June to the lowest level since 1980, according to results of a Reuters/University of Michigan survey issued last week.

Service industries, which range from homebuilders to mortgage lenders, retailers and restaurants, and account for almost 90 percent of the economy, probably expanded at a slower pace in June, economists forecast another report from the Institute for Supply Management will show.

The group's non-manufacturing index, due July 3, fell to 51 in June from 51.7 the prior month, according to the survey median.

A worsening slump in residential construction has contributed to the weakening. Commerce may report July 1 that construction spending fell 0.5 percent in May after a 0.4 percent decline the prior month, according to economists surveyed.

BLOOMBERG