The bad economic news continued to pile up in the United States today, cementing Bay Street economists’ expectations for a U.S. recession, and that the Federal Reserve Board will have to keep rates on hold for now.

The U.S. Department of Labour reported that employment declined for the sixth consecutive month in June, as 62,000 jobs disappeared. The total was more or less in line with market expectations, however, the details of the report were somewhat weak, earlier months were revised lower, and another report showed rising jobless claims.

“June’s jobs report continues to paint a picture of a labour market under stress,” said CIBC World Markets. “We are still not seeing triple-digit monthly job losses as in previous recessions, but the constant declines since January of this year are adding up. These figures remain consistent with a mild recession and only highlight the difficult path that policy makers must tread over the next few months as economic growth continues to weaken and inflation continues to climb.”

“The poor state of the U.S. labour market only reconfirms our view that consumer spending will weaken materially in the third quarter. Furthermore, June’s inability to give back some of May’s outsized gains in the unemployment rate means that we are raising our unemployment forecast both for the remainder of the year and for 2009,” adds CIBC.

“The continued declines in employment suggest a negative factor weighing on household spending in the near-term. Fortunately, the recently issued tax rebate cheques are providing an offset as evidenced by the stronger-than-expected consumer spending numbers in May. However, this support from fiscal policy will be relatively short-lived and is likely to fade by the end of the current quarter,” comments RBC Economics.

“Our forecast assumes that by then labour markets will start to improve as the restraint from the credit tightening and high energy prices starts to ease. However, if these negative factors persist, concern will re-emerge about GDP growth remaining positive in the fourth quarter and going into 2009. This downside risk to growth is expected to result in the Fed opting to hold Fed funds unchanged at a still-stimulative 2% through the first half of next year despite increasing concerns within the Fed about inflation pressures building in the system,” RBC says.

Also, it was reported that the non manufacturing ISM index tumbled in June, and was well below consensus expectations. “On balance, this report is troubling in that it shows weak demand and high prices, which is a bad combination,” noted TD Securities. “Unlike the ISM manufacturing index, released earlier this week, today’s data has dipped below the 50-threshold and suggests weakness among U.S. non manufacturers. However, it does reflect the current themes in the broader U.S. economy and in that regard comes as little surprise.”

“The mood among U.S. non-manufacturers took a nasty turn for the worse in June, with shrinking order-books, soaring material costs, mounting layoffs and rising inventories,” said BMO Capital Markets. “The tone of the report was simply awful, with companies citing rising energy costs as a major strain on profit margins. Prices paid for materials and services rose to the highest level in the series’ 11-year history. One big worry, customers cut their orders for the first time in four months, flagging softer production ahead. The employment index hit an all-time low, confirming the further decline in private service-providing payrolls in June.”

“If the U.S. isn’t already in recession, it sure appears to be heading for one,” BMO concludes. “The Fed wouldn’t dare tighten with soaring energy costs adding fuel to the economy’s downturn.”