WASHINGTON — Hiring slowed to a near-standstill last month, raising doubts that the economy will rebound in the second half of the year.
The report baffled economists who had predicted much stronger job creation. And it escalated a debate in Washington over how to spur hiring and energize the economy while also cutting federal spending.
Just 18,000 net jobs were created in June, the fewest in nine months. The unemployment rate rose to 9.2 percent, the highest rate of the year, the Labor Department said Friday.
Stocks plunged after the report was released, although the market recovered some losses in late-afternoon trading. The Dow Jones industrial average closed down 62 points for the day. Broader indexes also fell.
Friday’s report suggested that a slowdown that struck the economy in the spring and curtailed job creation may be more than brief.
“June’s employment report doesn’t have a single redeeming feature,” said Paul Ashworth, an economist at Capital Economics. “It’s awful from start to finish.”
Two years after the recession officially ended, companies are adding fewer workers despite record cash stockpiles and healthy profit margins.
A result is that more people are giving up looking for work. More than a quarter-million people stopped their job searches in June. That kept the unemployment rate from rising even further. When laid-off workers stop looking for work, they are no longer counted as unemployed.
Including discouraged workers and those working part time, but who would prefer full-time work, the “underemployment” rate jumped from 15.8 percent to 16.2 percent.
Businesses added just 57,000 jobs last month. That was the fewest in more than a year. Governments cut 39,000 jobs. Over the past eight months, federal, state and local governments have cut a combined 238,000 positions.
June was the second straight month of feeble job growth. And the government on Friday revised down the number of jobs the economy added in May, from 54,000 to 25,000.
Companies have pulled back sharply on hiring after adding an average of 215,000 jobs per month from February through April. The economy typically needs to add 125,000 jobs per month just to keep up with population growth. And at least twice that many jobs are needed to bring down the unemployment rate.
Unemployment has topped 8 percent for 29 months, the longest streak since the 1930s. At the same point after the previous three recessions, unemployment averaged just 6.8 percent.
Most economists expect unemployment to remain near 8 percent by next year’s election. That would mean Obama would face a higher unemployment rate than any president running for re-election since World War II.
Economists have said that temporary factors, in part, have forced some employers to scale back hiring plans. High gas prices have cut into consumer spending, which fuels 70 percent of economic activity. And supply-chain disruptions stemming from the Japan crisis have slowed U.S. manufacturing production.
Most analysts had hoped that as those trends faded, the economy would pick up in the second half of this year. Manufacturing output has shown signs of reviving and auto factories in Japan have resumed production. At the same time, gas prices have dropped to a national average of $3.59 a gallon, from a peak of nearly $4 in early May.
But those factors, plus a still-slumping housing sector and fallout from the European debt crisis, may continue to hold back the U.S. economy for months.
Federal Reserve Chairman Ben Bernanke acknowledged last month that the impact of the weak housing market and tighter credit might be “more persistent than we thought.” The Fed lowered its forecast for growth this year to about 2.8 percent, down from an earlier estimate of 3.2 percent.
The economy grew at a weak 2 percent pace in the first half of this year, analysts say. It was expected to improve to a 3.2 percent pace in final six months of the year, according to an Associated Press survey of 38 economists.
But the latest report has raised doubt about those forecasts. The economy would need to grow 5 percent for a whole year to significantly bring down the unemployment rate.
Jonas Prising, president of Manpower’s Americas Group, said another factor is at work: companies are more nimble at managing their work forces and can delay hiring at the first sign of trouble. That can amplify the impact of even temporary disruptions.
Complex software enables managers to monitor real-time changes in their business. They can wait until nearly the last minute to add workers.
“They don’t hire in anticipation of demand; they hire when they see demand increasing,” Prising said.
In June, hiring was weak in most sectors. Manufacturers added only 6,000 jobs. Health care added 17,400, the fewest in 18 months. And professional and business services, which include accounting, legal and engineering jobs, grew by only 12,000.
Construction and financial services cut jobs.
People who do have jobs are earning less. Average hourly wages declined slightly last month.
The average work week slipped to 34.3 hours, from 34.4, which means employers demanded less work from their staffs. Usually when companies are preparing to hire, they demand more hours from employees.
And temporary employment fell 12,000. Businesses generally hire more temporary workers before taking on permanent ones.
The number of unemployed workers rose almost 175,000 to 14.1 million, pushing up the unemployment rate.