Unemployment Rate Rises to 4.5% in June

NEW YORK – The nation's unemployment rate rose to 4.5 percent in June as 114,000 Americans lost their jobs, mainly in the manuacturing sector, the Labor Department said Friday in a report that's likely to rekindle fears of a prolonged downturn.

The report portrayed a weaker jobs market that many had expected. Economists polled by Reuters had expected 44,000 job losses in June outside the farm sector.

Still, at 4.5 percent, the increase in the unemployment rate (from 4.4 percent in May) came in better than the 4.6% percent forecast by economists. The 4.5 percent level matched the unemployment rate in April with both months representing the highest level the jobless rate has reached in the year-long economic slowdown.

To stave off recession, the Federal Reserve has cut interest rates six times this year. The most recent cut, by a quarter-point, came last week. Each of the other five were by bolder half-point moves.

Businesses slashed payroll for the second time in three months, cutting 114,000 jobs in June, after a reduction of 165,000 jobs in April. Payrolls had only edged up by 8,000 in May.

Job losses in June were led by a sharp decline of 113,000 jobs in manufacturing, which has suffered 785,000 job losses over the last 12 months, with three-fourths of those losses occurring since January.

For June, the industries suffering the biggest losses were computer-related. Electronic equipment makers cut 31,000 jobs. Industrial machinery makers cut 22,000 positions.

Even the service sector, where most Americans work, was weak in June, managing an increase of only 5,000 jobs, the weakest showing since an outright loss of 15,000 jobs in August 2000.

Much of the weakness was centered in firms providing temporary workers, which suffered a ninth consecutive monthly decline in June. The temporary help industry has lost a total of 379,000 jobs in the last nine months.

The weakness at temp firms, hotels and amusement parks was offset slightly by strong job gains in health services and engineering.

Some economists fear that if the employment climate worsens seriously, consumers -- who have been keeping the economy afloat -- might sharply cut back spending and tip the country into recession.

This fear so far has not been realized as the consumer sector has been the main source of strength keeping the economy afloat. Just this week Detroit reported that auto sales rebounded in June.

Treasury Secretary Paul O'Neill said Thursday that the strength in auto sales and housing gave him hope that the economy will recover in coming months, helped by President Bush's tax cut and the series of rate reductions by the Federal Reserve.

-- Reuters and the Associated Press contributed to this report.