Hopeful signs emerge for struggling U.S. jobs market

U.S. private employers stepped up hiring in June and the number of Americans filing new claims for jobless benefits last week fell by the most in two months, hopeful signs for the struggling labor market.

But dark clouds continue to gather over the U.S. economy, with growth in the vast services sector crawling to its slowest in nearly 2-1/2 years in June and retailers reporting sales below expectations, other data showed on Thursday.

The economy has been hit by turbulence from Europe's debt crisis and fears of tax increases at home next year, undermining confidence among businesses and ordinary Americans.

"In terms of employment, they suggest some improvement in the labor market performance relative to the month before, but nonetheless show economic activity is weakening," said Millan Mulraine, senior macro strategist at TD Securities in New York.

Private employers added 176,000 new workers to their payrolls last month, the ADP National Employment Report showed, after increasing 136,000 in May. The government will release its closely watched employment report for June on Friday.

Although ADP has a poor track record of predicting nonfarm payrolls, it was another welcome sign for the labor market.

Initial claims for state unemployment benefits dropped 14,000 to a seasonally adjusted 374,000, the Labor Department said in a separate report. The four-week average for new claims, a better measure of labor market trends, fell 1,500 to 385,750.

"While tomorrow's employment numbers may not be great, it is beginning to look like the labor market is not nearly as weak as feared," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Nonfarm payrolls are expected to have increased 90,000 in June, according to a Reuters survey, after May's 69,000 gain The unemployment rate is seen steady at 8.2 percent after rising in May for the first time since August.

Citing a recent raft of encouraging labor market data, economists at Goldman Sachs on Thursday upgraded their outlook for June payrolls growth to 125,000 from 75,000, which had been near the lower end of the consensus forecast range.

U.S. stocks were down modestly in late morning and Treasuries were higher as markets mulled rate cuts by China's central bank and the European Central Bank.

Services Sector Slowing

A third report showed the number of planned layoffs at U.S. firms fell in June to its lowest level in over a year. Employers announced 37,551 planned job cuts last month, down from 61,887 in May, consultants Challenger, Gray & Christmas said.

While the labor market picture is not deteriorating in the face of the growing uncertainty, other parts of economy are slowing significantly.

The pace of growth in the services sector eased in June to its slowest since January 2010 as new orders, including exports fell, a fourth report showed. Employment, however, rose after dipping in May.

The Institute for Supply Management's services index fell to 52.1 last month from 53.7 in May. A reading above 50 indicates expansion in the sector.

Job growth weakened in recent months, prompting the Federal Reserve last month to ease monetary policy further by extending a program to re-weight bonds it already holds toward longer maturities to hold down borrowing costs.

"The Federal Reserve needs to see sustained improvement, like the claims moving back down toward 300,000 and a steady decline in the unemployment rate," said John Canally, an economist at LPL Financial in Boston.

"If we get a couple of more bad jobs reports, (Fed policymakers) will come in with more stimulus. Today's reports suggest they might hold off, but they will want to see more data before they decide."

New applications for unemployment benefits remain in a tight range, and the four-week average is still elevated, suggesting any improvement in the jobs market will only be gradual.

Stubbornly high unemployment and anxiety about the economy weighed on sales at top U.S. retailer last month, raising concerns shoppers are returning to penny-pinching.

Costco Wholesale Corp, Macy's Inc, Kohl's Corp and Target Corp were among the chains that reported disappointing June sales at stores open at least a year.

[Source: By Lucia Mutikani, Reuters, Washington, 05Jul12]

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