U.S. employers hired far fewer workers than expected in May and the jobless rate rose to 9.1%, raising concerns the economy might be stuck in a painful slow-growth mode.
Nonfarm payrolls increased 54,000 last month, the weakest
reading since September, the Labor Department said on Friday.
Private employment rose just 83,000, the least since last June,
while government payrolls dropped 29,000.
Economists had expected payrolls to rise 150,000 and
private hiring to increase 175,000. The government revised
employment figures for March and April to show 39,000 fewer
jobs created than previously estimated.
The job creation slowdown confirmed the economic weakness
already flagged by other data from consumer spending to
manufacturing, and it stoked fears the economy could be facing
a more troubling stretch of weakness than had been thought.
"There are plenty of reasons to expect the third quarter
will be better. But the question is now becoming how much
better?," said Nigel Gault, chief U.S. economist at IHS Global
Insight in Lexington, Massachusetts.
Economists had pinned the economy's sluggishness largely on
high energy prices, supply chain disruptions stemming from
Japan's earthquake and tornadoes and flooding in U.S. Midwest
and South. The department said it found "no clear impact" from
weather on the jobs figures.
The employment report provides one of the best early
reads on the health of the U.S. economy and it sets the tone
for global financial markets.
U.S. stocks opened lower, while Treasury debt prices added
to earlier gains and interest rate futures rose, signaling that
traders believe mounting signs of economic weakness will lead
the Federal Reserve to maintain an ultra-easy monetary policy.
The dollar fell against the yen and Swiss franc.
The sharp slowdown in job creation is troubling news for
President Barack Obama, whose chances of re-election next year
could hinge on the health of the economy.
RECESSION BOUND?
Economists said the report did not suggest the economy was
heading into recession, but they said job growth could prove
frustratingly slow.
"It is likely that this will be a soft patch in the coming
months but overall it will probably be a soft patch rather than
a double-dip recession or something worse," said Sean Incremona
an economist at 4CAST in New York.
The data lent more fuel to talk about the need for the Fed
to extend its asset purchasing program when it expires this
month, but officials at the central bank have set a high bar
for any further easing of monetary policy.
With the Obama administration and lawmakers discussing how
best to trim the U.S. budget gap, the economy could be left to
its own devices.
"The government changed our flat tire in 2008 and now we're
driving around without a spare," said Jack Ablin, chief
investment officer at Harris Private Bank in Chicago.
High gasoline costs hurt consumer spending in the first
quarter, restricting economic growth to a 1.8% annual
pace after expanding at a 3.1% rate in the
October-December period.
The economy has regained only a fraction of the more than 8
million jobs lost during the recession. Economists say payrolls
growth above 300,000 a month is needed to make significant
progress in shrinking the pool of 13.9 mln unemployed
Americans.
The rise in the unemployment rate from 9.0% in April
reflected discouraged workers who had been inspired by the
pick-up in hiring in April re-entering the labor market.
"There is so much slack in the labor market it's going to
take a long time to get the unemployment rate down to between 6
and 7%. That's going to take years," said Stephen
Bronars, a senior economist at Welch Consulting in Washington.
BROAD-BASED WEAKNESS
The employment report showed weakness across the board,
with the private services sector adding 80,000 jobs last month
after increasing payrolls by 213,000 in April.
Within the private services sector, leisure and hospitality
fell, showing no boost from McDonald's recruitment of about
50,000 new staff in April, which was after the survey period
for that month's payrolls. Spring is traditionally a strong
hiring period for McDonald's.
Retail employment, which recorded its largest increase in
10 years in April, fell 8,500 last month. Manufacturing
payrolls growth contracted 5,000 last month, the first decline
since October, while construction employment rose 2,000.
The report showed the average work week steady at 34.4
hours and few signs of wage inflation, with average hourly
earnings rising 6 cents.
