US jobless rate falls

The US jobless rate fell to 6.2% in July, the labour department said today, but only because discouraged job-seekers left the workforce as companies continued to axe workers.

The small fall, from 6.4% in June, was the first for over a year.

But in a mixed picture for the world's largest economy, it was also announced that employers shed 44,000 jobs. The job losses contrasted with the expectations of private economists that payrolls would grow by 18,000.

The mixed employment data followed encouraging reports this week of a drop in jobless claims below the key 400,000 level and second quarter economic growth of 2.4%.

Today's unemployment rate fall announcement followed the exit of 556,000 from the workforce, the labour department said, the biggest drop since May 1995. Large reductions in the workforce can occur as job-seekers become discouraged and stop looking for work. Workers are not counted as unemployed unless they are actively looking for jobs.

Manufacturers led the job losses with 71,000, in a third straight year of monthly declines. Almost 1m jobs have been lost since the recession ended and the recovery began in November 2001, in a development that will worry the Bush administration in advance of next year's presidential election.

"I think it's a little disappointing," Jay Bryson, global economist with Wachovia Securities, told Reuters. "We're not generating job growth in manufacturing, and that's where job losses were concentrated. The unemployment rate ticked down, which is a good sign, but most of that is due to a decline in the labour force."

Although the US economy is showing signs of picking up from a weak first half, analysts warned about relying too much on America.

"The world economy can only return to a sustained path of expansion when the drivers of world growth are more equally distributed, with Europe and Asia carrying a larger and the US a smaller weight," analyst Thomas Mayer said in a Deutsche Bank briefing note.

In the UK the manufacturing sector grew in July for the first time in nine months, all but killing off prospects of a cut in interest rates this month.

The purchasing managers index for manufacturing released by the Chartered Institute of Purchasing and Supply rose to 50.9 from June's revised 49.5, signalling the sector's first expansion since October. A figure above 50 signifies expansion, while a number below 50 means contraction. Analysts had expected another fall in activity.

The Bank of England cut its base rate to a fresh 48-year low of 3.5% in July on the back of a weak global recovery and a sharp rebound in the pound. But strong retail sales figures last week and rising consumer confidence make another cut unlikely in the next few months.