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Economic Forecasts

More Job Losses Spell Weaker Consumer Spending

In the face of rising costs, companies look to continue to eliminate jobs.

Odds are employers will keep shedding jobs, albeit not at dramatic rates. The loss of 62,000 jobs in June is fairly moderate, considering that the economy is barely growing. Nevertheless, it’s the sixth straight month of losses, and it spells a continuing drag on growth in incomes as well as on consumer spending. For the moment at least, consumer spending is getting a temporary boost from tax rebate checks, but that’ll end soon.

The June job loss total puts the half-year total at minus 438,000. That's after small downward revisions in April and May. Meanwhile, the unemployment rate in June was 5.5%, the same as in May. We look for the rate to reach 6% around the end of the year.

The June numbers back up what various surveys show. Large firms that make up the Business Roundtable and small firms that belong to the National Federation of Independent Business have put hiring plans on the shelf until they see signs that the economy is improving.

Despite weak growth, more help from the Federal Reserve isn't likely. After seven rate cuts totaling 3.25 percentage points, the Federal Open Market Committee left rates unchanged at its June meeting and signaled that inflation pressures warrant attention.


As for inflation pressures, the Department of Labor says that average hourly earnings went up 0.3%, putting the rate of increase for the past 12 months at 3.4%. The pace has slowed over the past couple of months and won't rise while unemployment is increasing, a bit of comforting news for officials at the Fed.

Despite the moderate number of job losses in June, they are widespread. Manufacturing employment fell again, by 33,000. That sector has lost 353,000 jobs over the past 12 months. Losses also continued in construction and temp agencies. Health care is still growing, but at a slower pace.

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