WRAPUP 3-Hopeful signs emerge for struggling US jobs market

Thu Jul 5, 2012 11:17pm IST

* Private employers add 176,000 jobs in June

* New jobless claims fall 14,000 last week

* Reports offer hope for the labor market

* Services sector growth slows in June

By Lucia Mutikani and Leah Schnurr

WASHINGTON/NEW YORK, July 5 (Reuters) - 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 the vast services sector crawling forward at its slowest pace 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 a sign of growing concern that the world economy is deteriorating, China, Britain and the euro zone all loosened monetary policy in quick succession earlier on Thursday.

The day's data showed the U.S. economy has not completely lost steam, but it is not significantly accelerating either, said Anthony Chan, chief economist at Chase Wealth Management.

"We are still looking at an economy that is growing, and if labor market conditions continue to improve, that's likely to give consumers the wherewithal to give the U.S. economy a second wind in the second half of the year," he said.

U.S. 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.

ADP has a poor track record of predicting nonfarm payrolls. According to Barclays, its figures have differed from the government's numbers by an average 50,000 jobs per month this year. Still, the report was another welcome sign for the labor market.

Initial claims for state unemployment benefits dropped 14,000 to a seasonally adjusted 374,000 last week, 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 taken before Thursday's data, 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.

Financial markets focused on the central banks' moves. U.S. stocks were down modestly in midday trading, while Treasuries prices rose and the euro hit a one-month low against the dollar.

SERVICES SECTOR SLOWING

A separate report showed the number of planned layoffs at U.S. firms fell in June to the 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.

Still, the report should be considered "a bit of a relief" after ISM's manufacturing report earlier in the week showed activity in the sector shrank, said Paul Dales, senior U.S. economist at Capital Economics.

Dales said the two reports are consistent with around a 1 percent annualized rate of growth after the first quarter's 1.9 percent pace, and that the most reliable data does not suggest another recession is around the corner.

With the recovery flagging, the Federal Reserve last month eased monetary policy further by extending a program to re-weight bonds it already holds toward longer maturities to hold down borrowing costs.

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

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.