U.S. private sector job cuts fell in June to their lowest in eight months, but they still came in more than expected and the economy may be on track to lose another one million workers by year-end.
Private employers cut 473,000 jobs in June, down from 485,000 in May, according to a report by ADP Employer Services published on Wednesday. Economists surveyed by Reuters had expected 393,000 private-sector job cuts in June.
Though June's loss was the smallest ADP had reported since October 2008, the surprisingly large number of cuts dealt a setback to those expecting the U.S. economy to recover soon.
The data surprises me a little bit in that the consensus out there seems to be that business is improving and that the economy has hit bottom, said Mark Bonhard, investment advisor at Dawson Wealth Management in Cleveland, Ohio.
This definitely is not good news.
After the report, U.S. stock index futures pared their gains, though Wall Street eventually opened higher. U.S. Treasury debt prices initially recovered some ground but were then hit by renewed selling. The U.S. dollar pared its losses versus the euro.
The May figure was revised from an originally reported loss of 532,000 jobs.
WAITING FOR GROWTH
Though many analysts expect the U.S. economy to resume growth in the second half of the year following the worst recession in decades, they note that employment gains usually lag the initial rebound in gross domestic product.
Joel Prakken, chairman of Macroeconomic Advisers, whose firm jointly developed the ADP Employer Services report, told a teleconference of journalists growth is likely to be modest at about 2 to 2.5 percent in the second half of the year.
Between now and then I would expect additional job losses that are pushing up toward another million or so, maybe 800,000, 850,000, with the unemployment rate continuing to move up unevenly, Prakken said.
I would say (unemployment would be) pressing up between 9.75 and 10 percent in the second half of the year.
The ADP data comes ahead of Thursday's monthly nonfarm payrolls report from the government, which is much more comprehensive and includes both public and private sectors.
Economists expect the payrolls report, which will be issued a day early due to the Independence Day holiday on Friday, to show a loss of 363,000 jobs in June and a rise in the unemployment rate to 9.6 percent from May's 9.4 percent.
Earlier on Wednesday another privately released report showing planned layoffs at U.S. firms fell for a fifth consecutive month in June, hitting the lowest since March 2008 and providing a hopeful sign for an eventual economic rebound.
However, a decline in job losses is still a long way from turning into employment growth, said Prakken of Macroeconomic Advisers, adding:
We still are months away, I would say, from a trough in employment and the resumption of net employment gains is going to have to wait until early in 2010.
(Additional Reporting by John Parry; Editing by James Dalgleish)