US jobless rate falls

Manufacturing jobs have taken heavy losses

The US unemployment rate has fallen, but the drop was down to fewer workers searching for jobs rather than more jobs being created.

Official figures showed the jobless rate fell to 6.2% last month, down from 6.4% in June when US unemployment reached its highest level for nine years.

The data suggests that sluggish economic growth is still leading the US economy to shed jobs, with July seeing a net loss of 44,000 jobs, following a revised loss of 72,000 jobs in June.

Meanwhile some 556,000 workers left the potential pool of workers, discouraged that no jobs were available.

They are no longer counted as unemployed because they are not actively searching for work.

Mixed manufacturing picture

Manufacturing suffered the biggest losses, with 71,000 job losses.

Despite the recent falls in the value of the dollar, which helps boost US exports, manufacturing jobs have been lost every month for the last three years.

Without the voracious winds of government spending, the USS Economy might have been a rudderless dinghy Rich Yamarone, Argus Research

"I think it's a little disappointing," said Jay Bryson, an economist at Wachovia Securities.

"We're not generating job growth in manufacturing, and that's where job losses were concentrated."

But a monthly poll of purchasing managers who buy goods for their companies has suggested grounds for cautious optimism.

The ISM survey showed that manufacturing was expanding for the first time in five months, with a July reading of 51.8, up from 49.8 in June.

An index figure above 50 indicates expansion.

"While the overall economy continues to improve, the manufacturing sector reversed its recent trend of contraction," said ISM's Norbert Ore.

Growth returns

There are other signs that the US economy is on the rebound.

Preliminary estimates on Thursday suggested that US GDP had increased at an annual rate of 2.4% in the second quarter of 2003, up from 1.4% in the first three months of the year.

And on Friday the government reported that consumer spending rose by 0.3% in June, after a revised increase of 0.4% in May.

Personal income also rose by 0.3%, in line with expectations.

Consumer spending makes up two-thirds of economic output, and so far it has been holding up despite the weak economy.

The Bush administration is hoping that its $350bn tax cut, which includes extra cash for households with children in July, will help boost economic growth, and ultimately lead to job creation.

Defence boost

Many economists believe that economy would have to grow at a rate closer to 3.5%-4% in the second half of the year to generate more jobs.

However, much of the growth in the second quarter was driven by a 44% increase in defence spending, the largest rise since the Korean War in l950.

"Without the voracious winds of government spending, the USS Economy might have been a rudderless dinghy," said Rich Yamarone, an economist at Argus Research.

The US central bank, the Federal Reserve, has cut interest rates to a 48 year low of 1% in June, in order to spur growth.

If economic weaknesses continues, it may be tempted to make a further cut at its next rate-setting meeting on 12 August.