Johannesburg — THE economy shed 267000 jobs in the second quarter while recession forced another 302000 people already jobless to stop seeking work, data showed yesterday.

The official jobless rate, which excludes "discouraged" job seekers, rose slightly to 23,6% from 23,5% in the first quarter. But Statistics SA said the rise "masked a continued deterioration" in the labour market, which shrank to 17,5-million from 17,8-million in the first quarter, as more people became "economically inactive".

"Times are hard," said Kefiloe Masiteng, deputy director-general for population and social statistics at Stats SA. "People are losing jobs in big numbers and it is getting more and more difficult for people to find work. It is clear that the economy has not created jobs."

The data showed that SA's first recession in 17 years was taking a rising toll on employment, bringing cumulative job losses in the first half to 475000.

Jobs are a lagging indicator, and some analysts warned the toll from the downturn could climb to 800000 before economic output starts to rebound early next year.

But the most worrying signal from the data was the huge rise in "discouraged" job seekers, who had given up all hope of finding work.

If they are included in the ranks of the unemployed -- as many think they should be -- SA's jobless rate would rise to 32,5% from 31,2% in the first quarter of the year.

"The picture is more bleak than it would be with a straightforward rise in unemployment," said Razia Khan, Standard Chartered's regional research head for Africa.

The data should prompt a more open debate on labour rules and the clout of unions demanding double-digit pay hikes while companies collapsed, she said.

"Questions need to be asked about the structure of SA's economy and whether wages are being raised at the expense of greater job creation," she told Business Day.

At the same time, the Bureau for Economic Research (BER) said it expected the economy to contract 2% this year. That is in line with consensus forecasts, but worse than its previous estimate in May for a 0,8% contraction this year.

SA's economy shrank 6,4% in the first quarter, its steepest fall since 1984, and the jobs figures back evidence that it contracted sharply again in the second quarter.

"A return to mild positive growth is expected from the third quarter ... with fairly muted growth of 2,7% projected for 2010," the BER said.

The rand weakened as much as 1,7% to R7,91/ yesterday, an outcome analysts said stemmed in part from the Labour Force Survey, from Stats SA.

The data underlined weakness in the economy, and potential for further social unrest after riots over poor service delivery.

"Investors may respond to the social pressures by lightening their portfolios," said Brait economist Colen Garrow. "But overall I am reasonably confident that the South African story is a good one."

Employment fell in every sector of the economy other than community and social services, which are being supported by government spending, the data showed. The biggest fall was in "private households", showing a loss of 105000 jobs compared with the first quarter. That raised a few eyebrows as this category (domestic workers and gardeners) spurred a big rise in employment in last year's final quarter.

"I don't know what to make of these figures," said Econometrix economist Azar Jammine. Increased roll-out of social grants by the government might have "encouraged" some people to stop working, he said.

Within retail and wholesale trade, 59000 jobs were lost, the data showed. SA's trade sector has been hardest hit by the sharp retreat in consumer demand, the economy's main growth engine. Transport lost 30000 jobs and finance shed 15000 compared with the previous quarter.

The formal sector of the economy, which covers companies registered for tax, lost 93000 jobs. The informal sector, excluding agriculture, lost 41000 jobs. The farming sector shed 28000 positions.

Masiteng pointed out another worrying trend in the data. SA's labour force "participation" rate fell to 56,3% in the second quarter from 57,5% in the first quarter, she said.

Investec economist Kgotso Radira said the data "highlighted the severity" of SA's recession and pointed to an "uncertain recovery path".

"With the economy expected to contract by 2,6% in 2009, it is certain that the unemployment rate will rise further over the rest of the year."

The BER said it expected both consumer spending and investment to contract over the year. "While we have upgraded the investment forecast ... the BER is now more negative on the export and consumer demand outlook than was the case," it said.