Weak jobs report isn't all bad news
06/03/2011 8:47 AM
01/31/2013 7:19 PM
WASHINGTON — The dour May jobs report from the Labor Department on Friday confirmed earlier data pointing to a U.S. economic recovery in deceleration, but the same report also contained signs that a slide back into recession is unlikely.
After two consecutive months of strong hiring, the pace slowed precipitously in May with employers adding just 54,000 jobs as the jobless rate ticked up one-tenth of a point to 9.1 percent, according to the Bureau of Labor Statistics.
The dip in hiring wasn't a complete surprise, since Wednesday's ADP National Employment Report had forewarned what might be coming. It measures private-sector hiring and reported employment gains of just 38,000. The broader government report Friday actually showed more robust private-sector hiring at 83,000 jobs. The overall national jobs number was dragged down by continued layoffs by state and local governments, which shed another 29,000 posts.
"I do think underlying job growth is stronger than today's numbers suggest, probably closer to 150,000 to 200,000 per month. Assuming gasoline prices have peaked this year, I expect the economy and job growth to reaccelerate later this fall," said Mark Zandi, the chief economist for forecaster Moody's Analytics.
Nonetheless, the report fell short of analysts' consensus expectations by about two-thirds.
"This is a very disappointing report, confirming a sharp slowdown in economic growth this spring — $4 gasoline, fallout from the Japanese quake on the U.S. auto industry, and falling house prices are taking a heavy toll on the economy," Zandi said. He added that "businesses are flush and their balance sheets are very strong; it is not a question of whether they are able to invest and hire more, it is a question of their willingness . The economy doesn't move in a straight line, but all the trend lines are headed in the right direction."
The U.S. Chamber of Commerce, too, saw turbulence, but expects the recovery to continue.
"Despite the recent weakness, I expect the pace of economic growth to improve modestly in the second quarter before gaining a bit more momentum towards the end of the year," Martin Regalia, the chamber's chief economist, wrote in an analysis Friday. "Stronger economic growth should pull us out of our current doldrums and get us back to creating around 200,000 net new jobs per month."
Jared Franz, an economist with investment firm T. Rowe Price, suggested previous expectations of a more robust recovery may have been unrealistic.
"With the benefit of hindsight this morning's downside correction after three months of outsized gains (average: +220,000) should not have come as a surprise," he wrote in a Friday analysis. "We had not expected job growth to reach a 200,000-225,000 peak cruising speed until the end of this year."
The White House sought to accentuate the positive.
"There are always bumps on the road to recovery, but the overall trajectory of the economy has improved dramatically over the past two years," Austan Goolsbee, the chairman of the White House Council of Economic Advisers, said in a statement, noting the economy has added 2.1 million jobs in the past 15 months.
Within the government's report, the data suggested high oil and gasoline prices have weighed on the economy. Leisure and hospitality is a category especially sensitive to prices at the pump, and employment in this category fell by 6,000. And retail sales employment fell by 8,500, as gasoline crowded out other purchases and hurt consumer sentiment.
The supply-chain disruptions stemming from Japan's devastating earthquake and tsunami are rippling through the U.S. economy as well, most notable in the manufacturing sector, which shed 5,000 jobs in May, ending a winning streak. Earlier in the week, a key manufacturing index showed a sharp deceleration, attributed to Japan-related supply chain problems for carmakers manufacturing in the United States _ American and foreign-owned alike.
"Today's report clearly indicates that rising raw material and energy prices are taking a toll on the economy, particularly when you look at the sectors which are hardest hit. While overall manufacturing output continues to grow, there are definitely reasons for caution ahead," Chad Moutray, chief economist for the National Association of Manufacturers, wrote in his blog Friday.
One of the few bright spots in the May report was professional and business services, which showed a strong gain of 44,000 jobs. This category reflects higher-paying white-collar employment, which ripples through the economy, and has fueled by hiring in accounting, bookkeeping and computer services.
The strength of this category was bolstered Friday with release of the Institute for Supply Management's index of non-manufacturing activity. This covers the services sector, and the index showed activity picked up in May, a good sign given all the other indicators that were down for the month.
Friday's one-tenth of a percentage point gain in the unemployment rate was slight, but it was the third consecutive month it has ticked up. Economists have expected it to go up as hiring gained steam and more people who'd given up return to the workforce in search of employment.
There were plenty of signs of stress on ordinary Americans in the jobs report. Average hourly earnings grew by 0.3 percent during May, bringing the year-over-year increase in wage growth to just 1.8 percent.
"This means that in inflation-adjusted terms, wages are contracting. This is why most have yet to feel the improvement in the labor market. Over 1.7 million private-sector jobs have been created in the last year and at the same time, consumer sentiment is actually lower today than it was last year," Neil Dutta and Ethan Harris, economists at Bank of America Merrill Lynch, wrote in their Friday research report.
The number of long-term unemployed — defined as workers jobless for half a year or longer — rose by 361,000 to 6.2 million. Their share of the ranks of jobless increased slightly to an abnormally high 45.1 percent.
Politicians are sure to blame each other, but there are underlying problems in the economy that government cannot easily fix. One of these is the housing sector, where an elusive bottom for sliding prices has been predicted for four years running.
"A key reason the expansion remains so sluggish is that there has been, as yet, no sustained upturn in housing activity. Improved employment growth has not yet triggered the revival in household formation required to revive demand and work through the backlog of excess supply," Nigel Gault, the chief U.S. economist with forecaster IHS Global Insight, wrote in an analysis on the jobs report. "And with prices falling, buyers have a strong incentive to wait, despite the low level of interest rates. As a result, we have further delayed the housing upturn in our forecast."
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