Unemployment rate rises to 9.2 percent. Just a 'soft patch'?

US economy added just 18,000 jobs in June, a sign the recovery is dragging. The unemployment rate rose from 9.1 to 9.2 percent. Still, most economists see a pickup in second half of 2011.

Rogelio V. Solis/AP
Renita Manny Williamson, a former Army reservist listens as Mississippi Department of Employment Security representative Tuskie Sanders (r.) suggests ways to improve a job application letter at a state employment center in Jackson, Miss., Thursday, July 7. Unemployment rises to 9.2 percent in June, as employers add just 18,000 jobs.

America created just 18,000 jobs in June, raising new concerns about an expected revival of economic activity during the year's second half.

That preliminary number for June, released Friday by the Labor Department, showed sharply lower job creation than the 80,000 gain that economists had generally predicted.

The US unemployment rate rose to 9.2 percent, versus a consensus view among forecasters that the rate would remain unchanged at 9.1 percent. Adding to a drumbeat of disappointment, the Labor Department revised down its tally of job gains for two prior months.

Professional forecasters still generally predict that the US economy will regain some momentum in the year's second half and continue to grow, though at a modest pace. June could be just a bad month, near the end of a disappointing "soft patch" for the economy, before that expected pickup begins.

But the sour labor report prompted some new doubts about that rebound scenario. At a minimum, it serves as a reminder of the slow pace of job creation in the economic expansion that began in the middle of 2009.

So far, economic growth has fallen far short of a pace that would steer the nation back toward full employment after deep job losses in the Great Recession.

"The economy must add 13.7 million jobs over the next three years – 382,000 each month – to bring unemployment down to 6 percent," University of Maryland economist Peter Morici wrote after the Friday numbers were released. "Considering layoffs at state and local governments and likely federal spending cuts, the private sector jobs must increase at least 400,000 a month to accomplish that goal."

Since the economy began adding jobs in March 2010, job growth has averaged 110,000 per month, according to the Labor Department's monthly survey of employers. For two straight months now, fewer than 30,000 jobs have been created.

The gain of 18,000 jobs in June came as the public sector shed 39,000 jobs and the private sector added 57,000 (about half of what was expected).

Some economists see a turn back into recession as a distinct possibility over the next year. Most, however, are more optimistic.

"We expect a second half growth bounce," economists Ethan Harris and Neil Dutta at Bank of America Merrill Lynch wrote in a report on the job numbers. Although citing some risks to their forecast, they note that gasoline prices have fallen by about 30 cents per gallon in recent weeks and that supply-chain disruptions from Japan's earthquake "are fading."

Financial markets displayed that optimistic view in morning trading. Despite the grim job news, the Dow Jones Industrial Average and the broader Standard & Poor's 500 stock index were down a bit less than 1 percent from their prior-day closing levels.

That reaction suggests investors were disappointed, but not abandoning hopes for continued growth in the economy and in corporate profits.

By signaling a tenuous jobs recovery, however, the jobs report added pressure on policymakers in Washington. It now looks more urgent that bipartisan deficit talks result in an agreement to raise the nation's public-debt ceiling, while taming future federal deficits.

Failure to reach such an accord would rattle financial markets, economists say, and risk undermining the tepid recovery.

The job numbers also could intensify debate between Republicans and Democrats over what policy course will be best for US workers.

Republicans blame President Obama for creating an antibusiness climate, including new regulations and proposals for tax hikes on high-earning households. On the left, some Democrats say Republicans are pursuing a dangerous course of cutting federal spending too much – a move that could weaken overall economic activity.

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