The national jobless rate rose to 9.5 percent from 9.4 percent in May, a 26-year high.

Major stock indexes were down about 2 percent on the news.

The report—one of the most closely watched economic indicators—disappointed investors who had become encouraged by positive signs recently that key areas of the economy including housing and manufacturing were showing modest signs of improvement.

Nationally, the June jobs report was the latest blow to the market’s confidence about the economy.

In some of the nation’s largest states, the economic pain continues to escalate.

Several states, most notably California, are in the midst of a budget crisis.

The New York Legislature is at odds over unemployment insurance reform and an increase in unemployment benefits.

Business groups had fought against raising the state’s weekly payout, which is among the lowest in the nation, arguing it would burden companies with added premium expenses at a time they could least afford them. But the issue had gained some traction in Albany before the Senate stalemate took hold.

Worker advocates want the benefit raised from $405 a week to $475, and they want it to be indexed to the average weekly wage.

The report says that $267 million in added benefits would have reached displaced workers in the past year had Albany taken action. Federal stimulus dollars temporarily added $25 a week to the state’s maximum benefit, but New York’s payout still lags the maximums in neighboring New Jersey, Pennsylvania and Connecticut. It has not been raised in 10 years.

“A serious casualty of the chaos in Albany is that unemployed workers, in all industries, are being forced to scrape by with benefits far less than what many other states consider acceptable,” said Andrew Stettner, deputy director of the National Employment Law Project.

Through the middle of June, 800,000 New York workers filed first-time claims for unemployment insurance in 2009, or about 33,000 per week. That outpaces last year’s claims by more than 50 percent.

In Michigan, a state devastated by the collapse of the American auto industry, times appear to be getting even tougher.

The outlook for Michigan businesses over the next six to 12 months has worsened, according to a new survey from the American Society of Employers.

Nearly 70 percent of 200 Michigan employers surveyed in early June report their outlook has worsened when compared with the previous six months.

Of the total, just 12 percent report their business outlook has improved.

The negative outlook is affecting hiring forecasts, according to the survey, with just 5 percent of employers expecting to increase hiring compared with the previous six months.

Additionally, just 15 percent of surveyed companies expect to increase hiring in 2010 compared with 2009, said Mary Schroeder, CEO of the American Society of Employers, in a release.

Automotive suppliers lead all sectors in their negative outlook, with 90 percent of those companies taking a worse view of the next six months.

The survey found:
• 89 percent of automotive suppliers surveyed said they made permanent staff reductions in 2009, compared with 54 percent of non automotive suppliers.

• 87 percent of automotive suppliers instituted pay freezes this year, compared with 52 percent of other companies.

• 73 percent of automotive suppliers reduced wages and salary, compared with 30 percent of other companies.

• 66 percent of automotive suppliers instituted mandatory, unpaid leaves for employees, compared with just 10 percent of other companies.

“This is part of the market recovery,” said Roy Williams, chief executive of Prestige Wealth Management. “You’re going to get bad news.”

Williams forecast that the unemployment rate is likely to reach 11 percent.

Filed by Daniel Massey of Crain’s New York Business and Sherri Begin Welch of Crain’s Detroit Business, sister publications of Workforce Management. To comment, e-mail editors@workforce.com.