Surprise: July Unemployment Steady at 4.5%

WASHINGTON – The nation's unemployment rate unexpectedly held steady at 4.5 percent in July as fewer jobs were lost than feared, the Labor Department said Friday. Employment data for May and June were revised up.

The yearlong hemorrhaging of manufacturing jobs slowed, the Labor Department said, but it also indicated things in the overall economy were soft.

Analysts were expecting the rate to climb to 4.7 percent because of the economic slowdown.

According to the Labor Department, businesses cut payrolls for the second month in a row, eliminating 42,000 jobs in July after a loss of 93,000 in June, a smaller decline than the government previously reported.

To avert a recession, the Federal Reserve has cut interest rates six times this year, totaling 2.75 percentage points. Many analysts believe the Fed will order another rate reduction at its next meeting Aug. 21.

Manufacturing, which has been hardest hit by the economic slowdown and many believe is in a recession of its own, continued its yearlong slide, losing 49,000 jobs in July. That brought the total job loss to 837,000 during the past year. The loss in manufacturing jobs in July was less than half the size of the losses in each of the prior three months.

The biggest declines in manufacturing last month continued to be at electrical equipment companies, which lost 24,000 jobs, and in industrial machinery, which cut 21,000 jobs. Those two industries produce high-tech equipment.

One of the reasons the Fed has cited for cutting interest rates is its concern about slumping investment by businesses in computers and other high-tech equipment, which was the fuel of the economic boom.

In the service sector, normally the engine of job creation in the United States, only 5,000 jobs were added in July, the weakest showing since August 2000. A major factor has been large job losses at temporary employment companies. Employment at those businesses declined for the 10th month in a row, totaling a job loss of 429,000 over that period.

On a positive note, large employment gains were posted in the health services industry, which added 25,000 jobs, and in engineering and management services, which gained 13,000 jobs last month.

Job gains at bars and restaurants, which totaled 40,000 in July, were partially offset by losses at clothing, food, building materials and gardening supply stores.

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. The deteriorating job market and slumping stock prices helped to erode consumer confidence in July after two months of consecutive gains, a private research group reported Tuesday.

Employment in construction was little changed in July following a decline the month before. Monthly job growth has averaged 11,000 so far this year compared with 18,000 per month in 2000.

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