Unemployment Rate in U.S. Probably Rose, Raising Risk of Slower Spending

Unemployment Rate in U.S. Probably Rose, Raising Risk of Slower Spending

Unemployment probably climbed in July, raising the risk American households will keep a lid on spending for the rest of the year, economists said before a government report this week.

The jobless rate rose to 9.6 percent last month from 9.5 percent in June, according to the median estimate of 57 economists surveyed by Bloomberg News ahead of a Labor Department report Aug. 6. A drop in federal census workers as the population count wound down depressed payrolls by 60,000, the data may also show.

Both manufacturing, which led the U.S. out of the recession, and service industries kept cooling last month, indicating the economic recovery waned at the start of the second half, other reports this week may show. Federal Reserve Chairman Ben S. Bernanke last month said joblessness is “the most important” problem facing the economy.

“The poor job picture is the Achilles heel of the economy,” said Sung Won Sohn, a professor of economics and finance at California State University-Channel Islands in Camarillo, California. “Reflecting the lackluster job market, consumers have become more cautious about spending.”

The Census Bureau said it let go about 144,000 of the people conducting the decennial population count from mid-June to mid-July. It still had about 200,000 temporary workers on staff as of July 17, indicating additional cuts to come that will keep distorting the payroll figures for months.

Private Employment

For that reason, economists say private employment, which excludes government jobs, will be a better gauge of the state of the labor market for much of 2010. Employment at companies rose by 90,000 after an 83,000 gain in June, according to the median forecast.

“We are getting job gains, but they just don’t feel good enough,” said Jonathan Basile, an economist at Credit Suisse in New York.

Joblessness, which reached a 26-year high of 10.1 percent in October, will take time to recede as the number of previously discouraged jobseekers returning to the labor force exceeds the number of available jobs.

Factory payrolls increased in July for the seventh straight month, according to the survey. Health and education fields have also been adding workers.

Household spending rose 0.1 percent in June following a 0.2 percent gain the previous month, economists project a report from the Commerce Department Aug. 3 will show. Incomes likely increased 0.2 percent after climbing 0.4 percent.

‘Focused on Saving’

“Consumers seem to be focused on saving and spending only on necessities, and that’s likely to continue through the rest of the year,” said Ryan Sweet, a senior economist at Moody’s Economy.com Inc. in West Chester, Pennsylvania.

Tomorrow, the Institute for Supply Management’s manufacturing index will show factories expanded in July, albeit at a slower pace for a third straight month, according to economists surveyed.

The rebound has boosted manufacturers’ shares. The Standard & Poor’s Supercomposite Industrial Machinery Index of 52 companies, including Caterpillar Inc. and Deere & Co., has increased 14.5 percent so far this year compared with a 1.2 percent decline in the broader S&P 500.

Some companies are adding staff in the U.S. Vestas Wind Systems A/S, the world’s largest wind-turbine maker, plans to hire 850 workers at its Colorado plants over the next year.

More Orders

“Throughout 2009 we didn’t see any orders in the U.S. whatsoever,” Vestas spokesman Michael Holm said in a telephone interview from the company’s Randers, Denmark, headquarters. “That is changing. We see the market is easing up.”

Another report from the Institute for Supply Management, due Aug. 4, will show service industries in the U.S. expanded in July at a slower pace compared with the previous month. The index of non-manufacturing businesses, which covers about 90 percent of the economy, fell to a five-month low of 53, from 53.8 in June, according to the survey median. Readings above 50 signal expansion.

The housing market is one area showing signs of weakness in the wake of an expired government tax incentive for homebuyers. Construction spending fell in June for a second consecutive month, dropping 0.5 percent after a 0.2 percent decline in May, economists said ahead of a report tomorrow from the Commerce Department.

An index of signed purchase agreements, or pending home resales, climbed 3.7 percent in June after plunging a record 30 percent the previous month, economists projected an Aug. 3 report from the National Association of Realtors will show.

Bloomberg Survey

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Release Period Prior Median
Indicator Date Value Forecast
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ISM Manu Index 8/2 July 56.2 54.0
Construct Spending MOM% 8/2 June -0.2% -0.5%
Pers Inc MOM% 8/3 June 0.4% 0.2%
Pers Spend MOM% 8/3 June 0.2% 0.1%
Factory Orders MOM% 8/3 June -1.4% -0.3%
Pending Homes MOM% 8/3 June -30.0% 3.7%
ADP Payroll ,000’s 8/4 July 13 35
ISM NonManu Index 8/4 July 53.8 53.0
Initial Claims ,000’s 8/5 31-Jul 457 455
Nonfarm Payrolls ,000’s 8/6 July -125 -60
Private Payrolls ,000’s 8/6 July 83 90
Unemploy Rate % 8/6 July 9.5% 9.6%
Hourly Earnings MOM% 8/6 July -0.1% 0.1%
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source: bloomberg.com