U.S. economy creates 69,000 jobs in May
WASHINGTON (MarketWatch) -- The U.S. economy in May generated the fewest number of new jobs in a year and the unemployment rate ticked up, the strongest sign yet that the economy has slowed again.
The economy added 69,000 jobs in May, the Labor Department said Friday, far below Wall Street estimates and the smallest gain since May 2011. The number of new jobs created in April and March were also revised lower.
The unemployment rate moved up to 8.2% from 8.1% -- the first increase in 11 months -- as more people entered the labor force despite a slowdown in hiring.
The small increase in jobs is a blow to the Obama administration just six months before the 2012 election. President Obama is locked in a tight race with Republican contender Mitt Romney and a sluggish economy reduces his odds of re-election.
The disappointing employment report sent U.S. stocks tumbling in Friday trades. The Dow Jones industrial average fell more than 250 points in recent action. Read "Dreadful payrolls report feeds our fears."
"There's no positive spin that can be put on the May employment report," said Jim Baird, chief investment strategist at Plante Moran Financial Advisors. "It was a disappointment, pure and simple."
Economists surveyed by MarketWatch had forecast a 165,000 increase in new jobs and they expected the jobless rate to hold steady at 8.1%.
The latest data unnerved investors already worried about the worsening financial picture in Europe, a crisis that has hit U.S. stock prices hard. Almost all of the gains in the Dow in 2012, for example, have been erased.
Republicans blame the president's policies for the slow recovery after the 2007-2009 recession and are using his handling of the economy as their main line of attack.
Hiring has slowed down noticeably after a sharp burst from December to February, when job growth averaged 252,000 a month.
The number of new jobs created in April was slashed to 77,000 from an original estimate of 115,000, Job growth in March was revised down to 143,000 from 154,000.
Economists say unusually warm weather boosted job creation in the winter at the expense of hiring in the early spring. What remains to be seen is whether hiring picks up again soon, a tricky proposition given the recent string of data suggesting renewed softness in the economy.
Most economists believe the U.S. is on track to add an average of 150,000 to 200,000 jobs a month in 2012, a pace that would more than keep up with population growth.
Yet even faster job creation -- at least 250,000 a month for several years -- would be required to bring employment back to pre-recession levels. The U.S. has 5 million fewer jobs now than it did five years ago.
At this point, that kind of job growth seems improbable. The European crisis is unlikely to end soon, and as events of recent days have shown, the situation could get worse before it gets better.
Economists say the ongoing European crisis and slowdown in the Chinese economy may undermining the confidence of business executives and consumers.
"The weak job growth just confirms that business aren't about to embark on any major hiring plans until the situation in Europe clears up," said Jennifer Lee, senior economist at BMO Capital Markets. " This report does not bode well for the second half of the year."
U.S. consumers, meanwhile, have increased spending mainly by dipping into their savings or relying on installment loans. The U.S. savings rate fell in April to match the lowest level in five years, according to a separate government report issued Friday.
With wages growing slowly, consumers will have to cut back at some point to rebuild their savings, many economists contend.
If the economy doesn't accelerate again soon, the Federal Reserve may renew prior efforts to boost growth through a controversial action known as quantitative easing - buying bonds to inject more money into the economy. Yet the central bank probably cannot do much more to help the economy, especially with short-term interest rates at zero.
Inside the jobs report
The biggest increase in hiring last month took place in the transportation and warehouse sector. Companies in those fields added 36,000 jobs, mainly in transit and ground transportation.
Health care also created 33,000 new jobs, employment rose by 16,000 in wholesale trade and manufacturers added 12,000 jobs.
Employment fell by 28,000 in construction, bolstering the notion that a warm winter gave the industry a boost. The government also lost 13,000 jobs.
Most other industries saw little change in employment.
The average workweek, which tends to increase when the economy strengthens, fell by 0.1 hour to 34.4.
Average hourly earnings rose by 2 cents to $23.42. Hourly pay is only up 1.7% over the past year.
About 5.4 million Americans have been out of work for at least six months -- up from 5.1 million in April. And a total of 12.7 million are officially classified as unemployed.
When discouraged job seekers and those forced to work part-time jobs are included, the unemployment rate was 14.8% in May. It's the first increase in the so-called U6 rate in three months.
The size of the labor force participation rate, however, actually rose by 0.2 percentage points to 63.8% to come off a 25-year low.