Cloud over U.S. payrolls: job hunters take summer off

WASHINGTON (Reuters) - Better-than-expected July jobs numbers have numerous private economists heralding the end of the recession, but the Obama administration is taking a more guarded view because of a worrisome rise in long-term unemployment and a drop in labor force participation.

Friday's jobs report and other recent data "reinforce our view that the U.S. recession ended in June, and we have raised our third-quarter 2009 growth forecast to 3.5 percent," wrote Christian Broda, a Barclays Capital economist in New York.

U.S. employers shed 247,000 jobs in July, far fewer than the 320,000 forecast and the 467,000 eliminated in June. The unemployment rate unexpectedly fell to 9.4 percent from 9.5 percent, the Labor Department said.

Stocks rallied on the news, sending the benchmark Standard & Poor's 500 index to a 10-month high.

Helping to drive the unemployment rate lower, however, was a decline in the labor force participation rate by 0.2 percentage points to 65 percent. About 422,000 people stopped looking for work.

Meanwhile, the number of long-term unemployed, defined as those jobless for more than six months, rose by 584,000 to a to a record 4.97 million. More than one-third of those counted as unemployed have now been without work for six months, the highest level since the government started keeping these statistics in 1948.

"We believe this drop in joblessness will prove to be temporary. With the summer in full swing, we assume a larger than usual number of unemployed Americans decided to take a break from job hunting," said Bernard Baumohl, president of the Economic Outlook in Princeton Junction, New Jersey. "It's been a horrible labor market, so who could blame them?"

They will likely resume job searching in the autumn, lifting the unemployment rate higher, possibly above 10 percent. White House spokesman Robert Gibbs said on Thursday President Barack Obama believes the rate will top 10 percent.

The U.S. Treasury's top economist said he thought forecasts that growth would resume this year were "plausible" but expressed concern about the long-term unemployed. Alan Krueger, assistant secretary for economic policy, said further actions to help this group may be considered.

"The administration is constantly looking at how to get people back to work, how to lessen the pain of the recession," Krueger told a news briefing.

He declined to provide a forecast on when and where the unemployment rate would peak.

(Reporting by David Lawder; Editing by Kenneth Barry)