U.S. jobs picture grim, housing struggles

By Burton Frierson and Steven C. Johnson

NEW YORK (Reuters) - U.S. private employers slashed 79,000 jobs in June while planned layoffs at U.S. firms rose nearly 50 percent above year-ago levels, according to data that may spell bad news for a government payrolls report this week.

Wednesday's data brought some brighter news as well, however, with a boost in demand for aircraft lifting new orders at U.S. factories by an unexpectedly large 0.6 percent in May.

Also, U.S. mortgage applications rose last week with help from lower home loan rates, though the bounce follows a 6-1/2-year low the prior week.

Late payments on U.S. home equity lines of credit, however, rose to a 21-year high in the first quarter, given continued housing market stress and weakness in the economy, the American Bankers Association said.

On the labor front, private-sector employers' decisions to cut 79,000 jobs in June made for the largest decline since November 2002, according to a report by ADP Employer Services.

The data surprised financial markets, which were braced for a more modest 20,000-job loss. In May, the private sector added 25,000 jobs, revised down from an initial estimate of 40,000.

"The June ADP report offered another weak reading for employment. It looks like we're still seeing job cuts as economic growth is very weak," said Gary Thayer, senior economist at Wachovia Securities in St. Louis, Missouri.

Some feared the news does not bode well for the government's more comprehensive jobs report, which is due on Thursday and is the main event on the monthly data calendar.

If recent history is any guide, said Ian Shepherdson, chief U.S. economist at High Frequency Economics, the ADP report could signal an astounding drop of 200,000 jobs in the official payroll numbers, much more than the fall of 60,000 that economists predicted in a Reuters poll.

"Expect a weak official (payrolls) report tomorrow," said Shepherdson, who is based in Valhalla, New York.

But Joel Prakken, chairman of Macroeconomic Advisers LLC, said the unexpectedly large decline in private sector jobs does not ensure a similar downside surprise in the government data.

"I'm expecting tomorrow a number like minus-60 (thousand)," Prakken told Reuters. He said recent months when payrolls data was gloomier than ADP's may have been "a statistical vagary."

Macroeconomic Advisers jointly develops the report with ADP Employer Services.

Economists polled by Reuters are looking for the unemployment rate to ease to 5.4 percent after spiking in May to 5.5 percent, its highest in more than 3-1/2 years.

On Wall Street, stock futures pared gains after the ADP report but stocks recovered much of that ground on the rise in factory orders, while the dollar fell against the euro. Safe-haven government bonds, which perform better in times of economic malaise, rose as investors worried about consumers' ability to keep spending as firms shed jobs.