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US auto sector limiting job losses in July

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U.S. employers likely cut fewer jobs in July than in June, another sign the recession-hit economy is starting to find its footing, but the jobless rate may hit a 26-year high, a Reuters poll showed on Wednesday.

Analysts said the reopening of Chrysler and General Motors’ assembly plants after bankruptcy closures in the previous months may have added as many as 50,000 jobs to nonfarm payrolls in July.

The survey of 73 analysts forecast 320,000 jobs were slashed last month, an improvement on the 467,000 workers who were laid off in June. That would be the least for any month since last September when employers cut 321,000 jobs.

But the unemployment rate was expected to climb to 9.6 percent — highest since June 1983 — from 9.5 percent in June, as sluggish demand constrains companies’ ability to hire.

The Labor Department will release the July jobs report on Friday at 8:30 a.m. (1230 GMT).

Analysts cautioned there was a downside risk to the payrolls forecast after an independent report on Wednesday showed U.S. private employers cut 371,000 jobs in July, more than the 345,000 the market had been expecting.

A separate survey also showed employment in the country’s non-manufacturing sector fell in July, though another survey earlier this week indicated an improvement in manufacturing sector employment last month.

“Today’s numbers have increased the downside risk, but Friday’s report will point to further slowdown in the pace of layoffs,” said Harm Bandholz, an economist at Unicredit Markets & Investment Banking in New York.

BOOST FROM AUTOS

If job losses do slow as expected, it will be because of better prospects in the manufacturing sector, where the resumption of General Motors and Chrysler assembly plant operations is expected to offset layoffs in other areas.

Carmakers normally shut down their assembly plants for retooling in July but did so earlier this year after filing for bankruptcy to help them reorganize.

Seasonal adjustments linked to the plant closures would have the effect of lifting payrolls by about 50,000 in July, Bandholz estimated.

Other analysts agreed and said layoffs in the manufacturing sector could come in below 100,000 in July. Employment in manufacturing accounts for roughly a third of economic activity and shrank by 136,000 jobs in June.

“We have a bounce in vehicle assembly and the report on Friday might show us that much of the improvement in July payrolls was concentrated in autos and the factory sectors that are sensitive to autos,” said Mike Englund, chief economist at Action Economics in Boulder, Colorado.

Construction sector employment was also expected to improve in July, largely due to the government’s stimulus program and signs of stability in new home construction.

Analysts expected education and health services to have added jobs in July as was the case in previous months, with the service-providing sector seen purging more positions.

While the economy is showing signs of starting to crawl out of the longest recession since the Great Depression of the 1930s, the weak job market could slow down the pace and limit the strength of the recovery, analyst said.

“We expect a solid GDP (gross domestic product) rebound in the second half of this year, but for it to be a self-sustaining and strong recovery, we will need the help of private consumption,” said Unicredit Markets & Investment Banking’s Bandholz.

“That will only be there with a strong labor market.”

Analysts will watch for a pickup in the length of the average workweek in July after it fell to 33.0 hours in June from 33.1 hours in May.

“If that does not improve that will raise the question that perhaps this will be an anemic recovery and not sustainable,” said Action Economics’ Englund.

Source: Reuters

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