The U.S. unemployment rate ticked higher in June amid stubbornly sluggish hiring, a sign the road back to full economic health could be long and rocky.
Employers outside the farm sector added a paltry 36,000 workers to their payrolls last month, the Labor Department said Friday -- less than half what economists had expected.
Moreover, the department ratcheted down its data for April and May to show jobs growth of just 3,000 over those two months, compared to a total rise of 47,000 reported earlier.
With the jobs market still so frail, the unemployment rate rose to 5.9 percent in June from 5.8 percent a month earlier.
"You're seeing an improving trend, but it's pretty minimal. The report is still suggesting the labor market is improving, but not markedly so," Bank of Montreal/Harris Bank Assistant Chief Economist Paul Ferley said.
The weak tone of the report dovetailed with the view that the Federal Reserve would bide its time before raising overnight interest rates from a 40-year low of 1.75 percent.
U.S. Treasury prices got a boost from the report early in the day, but closed mostly lower as money flowed to a stock market rallying on relief that the Fourth of July holiday passed without any major terror incident.
The Dow Jones industrial average climbed 324 points, or 3.58 percent, while the tech-heavy Nasdaq Composite Index surged about 68 points, or 4.94 percent.
While June's payrolls gain was the biggest since a rise of 75,000 in February 2001, it showed hiring remains anemic. Analysts say monthly payroll increases in excess of 100,000 are needed to ensure the jobless rate does not continue to rise.
"We are still in a recovery, but the recovery is a little bit more tepid than we would like," Labor Secretary Elaine Chao told reporters. "It will take some time before businesses regain confidence in the long-term sustainability of the economy before they embark upon permanent hiring."
The long-suffering manufacturing sector shed 23,000 workers in June, the 23rd straight month factories cut theirpayrolls. Still, manufacturing job losses have slowed in recent months.
In addition, the workweek lengthened, both overall and in manufacturing, and manufacturing overtime rose -- possible precursors to employment gains ahead.
"The economy is improving in terms of output, but they're doing it by expanding hours rather than hiring new people. That's a good sign in that eventually you get to the point where they start hiring people back, but for now that's not the case," said Kevin Logan, senior economist at Dresdner Kleinwort Wasserstein.
In addition, the so-called help-supply category of payrolls, which comprises temporary workers, added 9,000 jobs, building on recent gains that economists have said suggest more permanent hiring may be in train.
Employers, generally cautious in the early stages of an economic recovery, often use longer hours and temporary help to deal with the first renewed burst of activity before hiring new workers on a permanent basis.
"At this point we should be seeing much stronger payrolls gains," said Stephen Stanley, senior market economist at Greenwich Capital Markets. "It's clear that firms are being very cautious, waiting as long as possible before hiring."
When that cautiousness will lift is an open question.
"It'll take an improvement in consumer confidence and business confidence and the equity market stabilizing before companies start hiring again and, right now, that's the big unknown," said Joseph LaVorgna, senior U.S. economist at Deutsche Bank Securities in New York.
"The Fed's on permanent hold, they wouldn't go till late this year at the earliest," he said, echoing a view widely held on Wall Street.
PRICE PRESSURES RISING?
So far, low inflation has given the Fed room to keep interest rates low and let the economy gather strength. But reports on Friday showed price pressures may be brewing.
The Leading Inflation Index from the Foundation for International Business and Economic Research rose for the sixth straight month to 94.9 in June from 92.7 in May. Separately, the Economic Cycle Research Institute said its Future Inflation Gauge jumped to 101.7 last month from 99.1 in May.
In addition, the Labor Department's jobs report showed that average hourly earnings increased six cents in June to $14.76.
But Fed watchers said the central bank was more concerned about economic weakness.
"I don't think there is any inflation danger that's worrying the Fed at this point," former Fed governor Lyle Gramley said. "At this juncture, the Fed does not want to see the inflation rate going any lower, it does not want to see us flirt with deflation."
Excluding the 23,000 government employees hired in June, total private-sector payrolls grew by 13,000 last month, a meager increase but still the biggest gain since January 2001.
The report showed that 14,000 construction workers were hired last month -- the most since a rise of 28,000 in May of last year -- while services firms created 33,000 jobs. But in the retail sector 18,000 workers were let go.
While hiring remains weak, there are signs the pace of layoffs was slackening. The department said Wednesday that initial claims for jobless benefits hit the lowest in 15 months last week. However, analysts cautioned that WorldCom Inc.'s recent announcement that it was cutting 17,000 jobs had darkened the picture