Jobless Rate Unexpectedly Rises in Sign of Extended U.S. Economy Slowdow
The unemployment rate in the U.S. unexpectedly climbed to 9.1 percent in May and payrolls grew at the slowest pace in eight months, showing employers are losing confidence as the economy slows.
The jobless rate increased to the highest level this year from 9 percent a month earlier, Labor Department figures showed yesterday in Washington. Employers added a less-than-projected 54,000 jobs last month, after a revised 232,000 gain in April that was smaller than initially estimated. The median forecast in a Bloomberg News survey called for payrolls to rise 165,000.
The absence of faster job growth may weigh on consumer spending, which makes up 70 percent of the economy, even as Americans find cheaper prices at the gas pump. The data make it more likely the Federal Reserve will hold its benchmark interest rate near zero into 2012, while also posing a challenge to President Barack Obama, whose re-election prospects hinge on bringing down unemployment.
“The weakness was broadbased,” said Sung Won Sohn, an economics professor at California State University-Channel Islands and former chief economist at Wells Fargo & Co. “Robust employment gains are not in the cards in coming months. The economy has simply hit a temporary soft patch.”
Stocks yesterday trimmed losses after another report showed service industries expanded more than forecast in May. The Standard & Poor’s 500 Index dropped 1 percent to close at 1,300.16 yesterday in New York. The yield on the benchmark 10- year Treasury note fell to 2.99 percent on June 3 from 3.03 percent the prior day.
The Institute for Supply Management yesterday said its index of non-manufacturing businesses increased to 54.6 in May from 52.8 a month earlier. The median estimate of 74 economists surveyed by Bloomberg projected the measure would rise to 54. A reading above 50 signals expansion.
The Labor Department’s figures showed private hiring, which excludes government agencies, rose 83,000 last month. Private payrolls increased 251,000 in April, initially reported as a gain of 268,000.
Factories cut payrolls in May for the first time in seven months, partly reflecting a drop at motor vehicles and parts producers that may have been related to a components shortage after the earthquake in Japan. Employment at retailers, leisure and hospitality companies and state and local governments also decreased.
“Some of the engines of hiring just went away,” said Julia Coronado, chief economist for North America at BNP Paribas in New York, who projected a 75,000 gain in May employment. “Combined with the slowdown in consumer spending, it raises concern that the slowing in hiring could be with us for a while.”
Economists at Barclays Capital Inc. yesterday cut their forecast for second-quarter economic growth to a 2 percent annual rate from a prior estimate of 3.5 percent. They also lowered the projection for the third quarter to 3 percent from 3.5 percent.
The payrolls report makes it more likely the Fed will signal it will keep its balance sheet at a record to spur the economy after ending $600 billion in bond purchases this month, a policy known as QE2 for the second round of quantitative easing. Central bankers next meet June 21-22.
“This really suggests everything will be on hold longer for the Fed,” said John Silvia, Wells Fargo Securities LLC’s chief economist in Charlotte, North Carolina. “They are on caution alert at this point. We are not creating jobs.”
Companies still reducing their workforce include H.J. Heinz Co., the world’s biggest ketchup maker, which in May announced plans to slash as many as 1,000 jobs worldwide and close five factories. Dean Foods Co. (DF), the largest U.S. milk processor, said it cut 600 positions last quarter and 140 early this quarter.
Austan Goolsbee, Obama’s chief economist, said the jobs report represents a “little bump” in the road to recovery and that the broader trends are “substantially more positive” than when Obama took office in January 2009.
“We should never read too much into any one month’s report,” Goolsbee, chairman of the Council of Economic Advisers, said in an interview on Bloomberg Television. “No doubt we face some headwinds.”
Employment and economic growth may bounce back as parts- supply shortages caused by the Japan earthquake and tsunami ease, said David Resler, chief economist at Nomura Securities International Inc. in New York. The slowdown “is going to be temporary,” he said.
Consumers are also getting some relief from a drop in gasoline prices. Consumer confidence rose for a second week in the period ended May 29, according to the Bloomberg Consumer Comfort Index.
“Job creation remains the most important factor during the economic recovery, but we do anticipate that it’s continuing to improve,” Don Johnson, vice president of U.S. sales at General Motors Co. (GM), said on a June 1 teleconference. “The environment for future hiring and investment does continue to be positive.”
Economic growth slipped to a 1.8 percent annual pace in the first three months of the year from 3.1 percent in the prior quarter, revised figures from the Commerce Department showed last week.
Manufacturing grew in May at the slowest pace in more than a year, according to Institute for Supply Management data this week, reinforcing concern the industry that led the U.S. recovery is cooling.
Consumer spending grew less than forecast in April as households felt the pinch of grocery and energy costs, a Commerce Department report showed.
“The current accommodative stance of U.S. monetary policy continues to be appropriate because the unemployment rate remains elevated and inflation is expected to remain subdued over the medium run,” Fed Vice Chairman Janet Yellen said in a Tokyo speech this week.
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