Unemployment Rate Steady, but Job Growth Slower Than Expected

WASHINGTON – The nation's unemployment rate held steady at 5.6 percent in June for a third straight month, but the pace of hiring slumped sharply after several months of robust gains, the government reported Friday.

The Labor Department (search) said only 112,000 jobs were created last month, far fewer than the 250,000 that Wall Street analysts had anticipated. April and May new-job totals were revised down, to 324,000 and 235,000 respectively, from 346,000 and 248.000.

June's payroll increase, nonetheless, was the 10th straight month of gains.

The unemployment rate was unchanged, as expected, at 5.6 percent. Economists expect the rate to slowly decline throughout the year. But job growth first must absorb all of the people returning to the pool of available workers. Last month, the labor force grew by 305,000.

In a sign of broader weakness, the average workweek eased to 33.6 hours in June from 33.8 in May, the shortest since a matching level in December.

All of June's job growth took place in service industries. The manufacturing sector (search) lost 11,000 jobs, a reversal after four straight months in which factories had added jobs following years of decline.

Analysts said the jobs report was a shock but held off judgment on whether it signaled an impending broader slowdown.

"It was pretty much a weak report, a disappointing report across the board," said economist Henry Willmore of Barclays Capital in New York. "But I don't think it changes the fundamental picture, we would have to see a bit more evidence before it would start to look like the economy is slowing down."

Evidence of a strengthening labor market and the specter of new inflationary pressures prompted the Federal Reserve (search) on Wednesday to raise interest rates for the first time in four years. The quarter-point increase was the first change since the funds rate was cut to a 46-year low of 1 percent in June 2003.

That had marked the 13th Fed rate cut in a series that began back in January 2001 as the central bank battled to jump-start an economy staggered by a series of blows, from a plunging stock market and the 2001 recession to terrorist attacks and two wars.

In the report, the health care and social services industries continued to add jobs, growing by an overall 30,000 in June. Employment in professional and technical services rose by 23,000 — led by continued gains in temporary employment firms.

Temp firms have added 306,000 new jobs since April 2003, providing some ammunition to critics of the Bush administration's economic policies. Democrats and others have contended that the recent surge in hiring is occurring in industries that pay far less than the jobs that were lost since January 2001.

Transportation and warehousing companies added 19,000 last month. In retail, clothing stores continued to hire, but home improvement and garden supply stores did not. Neither did car dealers and auto parts stores.

Reuters and the Associated Press contributed to this report.