U.S. Payrolls Drop 51,000 Jobs; Jobless Rate Rises

By Shobhana Chandra

Aug. 1 (Bloomberg) -- The U.S. unemployment rate rose to the highest
level in more than four years as employers cut jobs again in July,
increasing the threat of a deeper economic slowdown.

Payrolls fell by 51,000, less than forecast, after a decline of 51,000
in June, the Labor Department said today in Washington. The jobless rate
rose to 5.7 percent, from 5.5 percent the prior month. As recently as
April, the jobless rate was 5 percent.

``This is further evidence the economy is in a recession, probably a
shallow recession,'' said Nariman Behravesh, chief economist at Global
Insight Inc. in Lexington, Massachusetts. ``It will be a major drag on
consumer spending.''

The last time the unemployment rate climbed so much in four months was
in 2001, when the U.S. was last in a recession. Job losses have combined
with decreasing property values, stricter lending rules and near-record
energy prices to send consumer confidence levels close to the weakest in
16 years in July.

Cutbacks at UAL Corp. and Starbucks Corp. signal firings are spreading
beyond builders and manufacturers as raw-materials costs soar. General
Motors Corp., which today announced a second- quarter loss of $15.5
billion, may eliminate about 5,000 U.S. jobs by year-end, people
familiar with the plan said this week.

Today's report reinforces the case for the Federal Reserve to hold off
on any interest-rate increase until next year, economists said.

`Hands Are Tied'

The Fed's ``hands are tied, there is nothing they can do with regard to
this,'' said Kathleen Stephansen, director of global economics at Credit
Suisse Holdings USA Inc. in New York in an interview with Bloomberg Radio.