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Unemployment rate drops to 9.5 percent, but US economy sheds jobs

Much of the drop in the unemployment rate occurred because disappointed workers stopped looking for jobs.

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In this June 28 photo, Flora Guan, left, and Jessica Yang, recent graduates of San Francisco State University, fill out forms to take part in surveys with Fieldwork San Francisco at a national career fair in San Francisco. The unemployment rate fell to 9.5 percent, its lowest level in almost a year.

Eric Risberg/AP Photo

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At midyear, the economy’s ability to create new jobs seems to have hit a soft patch.

In June, the US economy shed 125,000 jobs, the Bureau of Labor Statistics (BLS) reported Friday. This mostly resulted from the loss of 225,000 temporary jobs at the Census Bureau. Private employers added 83,000 jobs – a number that indicates they remain far from enthusiastic about taking on new workers. And although the unemployment rate dropped to 9.5 percent from 9.7 percent, most of the improvement occurred because disappointed workers stopped looking for jobs, thus dropping out of the workforce.

The modest increase in private-sector job growth implies that the economy may be slowing. While most economists say it’s too early to announce a second recession – a double dip – they are becoming increasingly concerned about the prospects for the future.

“The recovery is at a critical juncture. It hangs in the balance,” says Mark Zandi, chief economist at Moody’s Economy.com. “I think we are going to continue on and avoid a double dip, but I have increasingly less conviction that will happen.”

The economy may struggle yet again in July, he says, as 1 million people lose eligibility to collect unemployment. And, Mr. Zandi says, the jobs numbers do not fully reflect the jitters on the stock market, the weakening housing sector, and possible layoffs as states try to balance their budgets.

Some of the weakness in the job market may be related to the expiration of various government props for the economy, says Richard DeKaser of Woodley Park Research in Washington. Congress is reluctant to keep programs going that add to the budget deficit.

Gone are the home-buyer tax credits, some tax credits for the purchase of energy-efficient equipment, and the extra weeks of unemployment insurance for 1 million workers.

“The implications are that it may be premature to remove government support too aggressively,” Mr. DeKaser says. “Doing so has its downsides.”

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The White House tried to be both positive and realistic about the June numbers. Speaking at Andrews Air Force Base, President Obama noted that the private sector had added jobs for six consecutive months.

“We’re headed in the right direction,” Mr. Obama said. “But as I was reminded on a trip to Racine, Wis., earlier this week, we’re not headed there fast enough for a lot of Americans. We’re not headed there fast enough for me, either.”

Obama, with members of his cabinet, announced 66 new projects that he said would create 5,000 construction and installation jobs in the broadband Internet service industry.

As soon as the jobs numbers were issued, Republicans attacked the Obama administration. “This jobs report is a disappointment for every family and every small business who heard President Obama declare just weeks ago that our economy is ‘getting stronger by the day,’ ” Rep. John Boehner of Ohio, the House Republican leader, said in an e-mailed press release.

Since the recession began in 2007, the economy has shed 8.4 million private-sector jobs. This year, it has added 600,000 jobs.

Many of the unemployed are becoming convinced that no jobs exist for them. According to the BLS, in June there were 1.2 million discouraged workers, up 414,000 from a year ago.

Yet the news was not completely bleak. Leisure and hospitality employment rose by 28,000, temporary workers increased by 21,000, new consulting jobs totaled 11,000, and transportation and warehousing added 15,000 jobs. Manufacturing employment, which has been rising all year, improved by 9,000 jobs.

Some economists had thought the Gulf oil spill might have some implications for the jobs picture. But there wasn’t much of an impact on a national basis, says economist John Canally of LPL Financial in Boston.

For example, many Gulf Coast hotels report that tourists are canceling bookings. But the rooms are being taken by cleanup crews hired by BP. The net result: a gain of 6,000 hotel jobs in June.

“It might be bad for some Gulf Coast hotels, but it looks like people are just going elsewhere,” he says.

Jobless claims in Mississippi, Alabama, and Louisiana haven’t changed much, either, Mr. Canally says. “There has been no impact from the oil spill,” he says.

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