UNEMPLOYMENT UP: Job Growth Slows Sharply in May 2011

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Employment growth slows sharply in May

June 3, 2011
By Lucia Mutikani

 
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WASHINGTON (Reuters) - Employers hired far fewer workers than expected in May and the jobless rate rose to 9.1 percent as high energy prices and the effects of Japan's earthquake bogged down the economy.
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 in May. 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. It could stoke fears about the depth and duration of a slowdown that started early in the year.
"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 Labor Department said severe weather last month, including tornadoes and flooding, in the Midwest and the South did not materially affect data collection.
It also said that while some workers in those regions may have been temporarily displaced from their jobs, it found "no clear impact of the disasters on the national employment and unemployment data for May."
The employment report provides one of the best early reads on the health of the U.S. economy and it regularly sets the tone for global financial markets.
U.S. stock index futures fell sharply, while Treasury debt prices added to earlier gains and interest rate futures rose, signaling that traders believe the Federal Reserve will stick with its ultra-low rate policy for a while.
The dollar fell against the yen and Swiss franc.
While the recent string of weak data has sparked talk about the need for the Fed to extend its asset purchasing program when it expires this month, analysts believe policymakers will take the soft payrolls report in stride.
Officials at the U.S. central bank regard the current downshift in the economy as temporary.
The Fed has been mapping out a strategy on how to start removing some of the massive stimulus it has lent the economy, and officials have made clear the bar for a further easing in monetary policy is high.
TEMPORARY FACTORS AT PLAY
High gasoline prices, bad weather and disruptions to motor vehicle production because of a shortage of parts from Japan after an earthquake in March have been blamed for the lull in economic activity.
"There are good reasons to suppose the third quarter will be better because we have seen some easing in commodity prices, gasoline prices are starting to come down and the bad effects on vehicle production of the Japanese problems will start to unwind," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.
High gasoline costs hurt consumer spending in the first quarter, restricting economic growth to a 1.8 percent annual pace after expanding at a 3.1 percent 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 million unemployed Americans.
The unemployment rate rose to 9.1 percent last month from 9.0 percent in April as some discouraged workers who had been inspired by the pick-up in hiring in April re-entered 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 percent. That's going to take years," said Stephen Bronars, a senior economist at Welch Consulting in Washington.
That could be bad news for President Barack Obama, whose chances of re-election next year could hinge on the health of the economy, particularly the labor market.
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.


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