Dismal jobs picture complicates debt talks (Reuters)

WASHINGTON (Reuters) – Dismal unemployment figures on Friday complicated efforts to avert a looming U.S. debt default as a top Republican said negotiators were not close to a deal that would ensure continued borrowing.

Tamping down expectations that Democrats and Republicans could reach agreement over the weekend, House of Representatives Speaker John Boehner said the two sides must overcome serious disagreements on taxes and spending cuts.

"It's not like there's some imminent deal about to happen," Boehner told a news conference. "This is a Rubik's Cube that we haven't quite worked out yet."

Partisan finger-pointing erupted anew after a government report showed the unemployment rate rose to 9.2 percent in June, dousing hopes that the economy is picking up steam.

Boehner, the top Republican in Congress, and President Barack Obama, a Democrat seeking re-election in 2012, are trying to craft a sweeping budget deal that would ensure the national debt remains at a sustainable level by cutting $4 trillion from budget deficits over 10 years.

That would give lawmakers political cover to raise the government's debt ceiling of $14.3 trillion before August 2, when the country is due to run out of borrowing capacity. Failure to act soon, some warn, could push the United States back into recession and send shock waves through the global economy.

Democrats and Republicans remain at odds over what elements should be part of the deal. Democrats are pushing for roughly $1 trillion in new tax revenue, while Republicans want to restructure popular benefit programs.

Among the options, negotiators could limit a tax break for companies that provide health benefits to their workers, said Representative Sandy Levin, the top Democrat on the tax-writing Ways and Means Committee.

The uncertainty is hurting American companies and the overall economy, Obama said.

"The sooner we get this done, the sooner that the markets know that the debt limit ceiling will have been raised and that we have a serious plan to deal with our debt and deficit, the sooner that we give our businesses the certainty that they will need in order to make additional investments to grow and to hire," he said at the White House.

The Republican-led House canceled a planned break during the week of July 18, which could make it easier for Congress to pass a deal by August.

MEETING ON SUNDAY

For now, financial markets are showing little concern.

In fact, investors beat a path to the U.S. Treasury's sale of $28 billion in four-week bills on Wednesday, elbowing each other for the chance to buy debt paying zero interest and maturing on August 4 -- two days after the deadline.

Obama, Boehner and other congressional leaders are due to meet on Sunday at 6 p.m. EDT (2200 GMT), with staffers working through the weekend to lay out options.

The session could see some hard bargaining but is not likely to produce a final deal, White House spokesman Jay Carney said.

The task probably was not helped by Friday's disappointing jobs report, which showed employers hired the fewest number of workers in nine months.

Obama is eager to bring the jobless rate down ahead of the November 2012 election, which will largely hinge on how Americans feel about the economy.

Republicans, who have passed bills that would roll back regulations and expand domestic oil and gas drilling, said Obama's policies have made businesses reluctant to hire.

"It just does not make sense for Americans to suffer under higher taxes in an economy like this," said Representative Eric Cantor, the No. 2 House Republican.

Democrats fear sharp spending cuts advocated by Republicans as part of any deficit reduction deal would further weaken the economy. Friday's report showed tepid private-sector job creation was undercut by state and local government layoffs as support from Obama's 2009 stimulus package has dried up.

Senate Democratic leaders have proposed ramping up highway construction, subsidizing green energy industries and extending a payroll tax cut due to expire at the end of this year. Those measures would worsen budget deficits and make it harder for negotiators to reach their $4 trillion goal.

(Additional reporting by David Morgan, Caren Bohan, Laura MacInnis and Matt Spetalnick in Washington and Ellen Freilich in New York; Editing by John O'Callaghan)

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Analysis: Dismal job numbers give off recession whiff (Reuters)

WASHINGTON (Reuters) – U.S. job growth in June essentially ground to a halt for a second month running, suggesting a sharp first half slowdown is not merely a blip, as Wall Street economists and Federal Reserve officials had hoped.

The U.S. economy generated just 43,000 jobs in the last two months, perhaps taking the world's largest economy skating closer to recession territory.

It was difficult to find a bright spot in the U.S. Labor Department report. Many key labor market signals deteriorated, and the jobless rate rose unexpectedly to 9.2 percent even though the work force actually shrank.

Shaun Osborne, senior currency strategist at TD Securities, summed it up: "The number stinks." Watch for forecast revisions to second half U.S. gross domestic product.

Following are key details from the Labor Department figures, which could raise questions about whether the Fed should take additional actions to support growth:

** Average hours worked declined and earnings were essentially stagnant. That's a bad sign because employers often increase hours before taking on new workers.

** Manufacturing added a paltry 6,000 jobs and manufacturing hours worked declined noticeably to 40.3 in June from 40.6 in May.

** Construction employment fell for a second month, reflecting a housing sector that many economists have described as already being in a double-dip.

** The notion that the economy is suffering a temporary slowdown due to effects from Japan's earthquake and tsunami is becoming harder to sustain given the broad weakness seen in the report.

** Government employment has been steadily declining, falling for twelve of the last 13 months. State and local governments are under extreme budget pressures as their revenues are dented by a weak economy and heavy debt loads.

** Long-term unemployment statistics offer a particularly discouraging picture of the nation's job woes. Over 6 million Americans, or a record 45 percent of the jobless population, have been without a job for six months or longer.

** Temporary hiring fell by a sharp 12,000, suggesting a reluctance by employers to take on new workers even on a short-term basis. Economists often look to this measure as a

leading indicator on future permanent hiring.

(Reporting by Pedro Nicolaci da Costa)

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