Roughly 200,000 state workers will receive minimum wage paychecks next month under terms of an order issued Thursday by the Schwarzenegger administration.

According to a letter delivered to Controller John Chiang in late afternoon, July pay for most hourly state employees will be withheld to the minimum allowed by federal law – $7.25 an hour – and then restored once there’s a budget.

“Regrettably, we must take the steps outlined in the attached pay letter to adjust wages and salaries during this budget impasse,” Personnel Administration Director Debbie Endsley said in a letter accompanying the pay withholding instructions.

The administration declined further comment.

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The US economy lost 125,000 jobs in June, more than economists had forecast, as thousands of temporary census jobs ended and private hiring grew less than expected.

And though the unemployment rate unexpectedly fell to 9.5% from 9.7%, the lowest in a year, it was largely due to more people dropping out of the labor force.

The report was the latest sign that the economic recovery may be faltering.

“Overall what this does is it reinforces the market’s view that the U.S. recovery is losing steam,” said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington.

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Fears that the economic recovery is fizzling grew Thursday after the government and private sector issued weak reports on a number of fronts.

Unemployment claims are up, home sales are plunging without government incentives and manufacturing growth is slowing.

Meanwhile, 1.3 million people are without federal jobless benefits now that Congress adjourned for a weeklong Independence Day recess without passing an extension. That number could grow to 3.3 million by the end of the month if lawmakers can’t resolve the issue when they return.

All of this worries economists. As jobless claims grow and benefits shrink, Americans have less money to spend and the economy can’t grow fast enough to create new jobs. Some are revising their forecasts for growth in the third quarter. Others are afraid the country is on the verge of falling back into a recession.

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The federal debt will represent 62% of the nation’s economy by the end of this year, the highest percentage since just after World War II, according to a long-term budget outlook released today by the non-partisan Congressional Budget Office.

At the end of 2008, the debt equaled about 40 % of the nation’s annual economic output, according to the CBO.

The report comes as the National Commission on Fiscal Responsibility and Reform meets today. The group, created by President Obama, is expected to issue recommendations in December to curb the debt – a point Democrats raised Wednesday.

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Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

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