Payroll growth in U.S. stalls as jobless rate rises

by The City Wire staff ([email protected]) 65 views 

BLOOMBERG — The American jobs engine sputtered in May as employers added the fewest workers in a year and the unemployment rate rose, dealing a blow to President Barack Obama’s re-election prospects and raising the odds the Federal Reserve will step in to boost growth.

Payrolls climbed by 69,000 last month, less than the most- pessimistic forecast in a Bloomberg News survey, after a revised 77,000 gain in April that was smaller than initially estimated, Labor Department figures showed Friday (June 1) in Washington. The median projection called for a 150,000 May advance. The jobless rate rose to 8.2% from 8.1%.

“The picture is getting more worrisome,” Bruce Kasman, chief economist for JPMorgan Chase & Co. in New York, said on a conference call with clients. “The U.S. economy is going to be somewhat softer over the next couple of quarters.”

The jobless data released Friday included the following points.
• The unemployment rate was forecast to hold at 8.1%, according to the survey median. Unemployment has exceeded 8% since February 2009, the longest such stretch since monthly records began in 1948.

• The number of people unemployed for 27 weeks or more rose as a percentage of all jobless, to 42.8% from 41.3%.

• Factory employment increased by 12,000, less than the survey forecast of a 15,000 increase.

• Construction companies cut 28,000 jobs, the most in two years, and retailers boosted payrolls by 2,300. Government payrolls declined by 13,000. Employment at service providers increased 84,000 in May.

• Americans’ average hourly earnings were 1.7% higher than a year earlier, the smallest 12-month change since December 2010. At the same time, they worked 34.4 hours a week on average, six minutes less than the month before.

• The so-called underemployment rate — which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking — increased to 14.8% from 14.5%.

• The participation rate, which indicates the share of working-age people in the labor force, rose to 63.8% from 63.6%.

Stocks tumbled, erasing the 2012 advance in the Dow Jones Industrial Average, and Treasury yields fell as the data reinforced concern that global growth is heading for a third mid-year lull. Other reports released Friday showed manufacturing output shrank in Europe and slowed in China, the world’s second-largest economy.

Mitt Romney, the presumptive Republican nominee in the November presidential election, seized on the jobs figures to attack Obama.

“It is now clear to everyone that President Obama’s policies have failed to achieve their goals and that the Obama economy is crushing America’s middle class,” Romney said in a statement.

The administration, seeking to blunt the political impact, highlighted private payroll gains over the past 27 months while promoting measures Obama has proposed to boost hiring.

“We’ve known all along that this is a fragile world economy, but we have been adding jobs,” Alan Krueger, chairman of the White House Council of Economic Advisers, said Friday. “We’d like to see more job growth given the enormous hole that we face in terms of jobs in this country.”

Private payrolls, which exclude government agencies, rose 82,000 in May after a revised gain of 87,000. They were projected to rise by 164,000, the survey showed.

“The U.S. economy is recovering but at a stubbornly slow pace,” Carl Camden, president and chief executive officer at staffing provider Kelly Services Inc., said on a May 9 conference call. “Weakening European economies have shaken confidence here in the U.S. Business, consumers and investors remain cautious.”

Friday’s jobs report increases the odds that Fed policy makers led by Chairman Ben S. Bernanke will take further action to stimulate the world’s largest economy when they next meet on June 19-20. Operation Twist, a program to extend the maturities of bonds on the Fed’s balance sheet, expires this month.

Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview before Friday’s report that the central bank should prolong the program.

“That would have the impact of helping to reduce longer- term interest rates without expanding our balance sheet,” Rosengren said.

Other Fed policy makers may join him in supporting an extension, said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, N.C.

“My feeling is that because the slowdown in the economy has been fairly rapid compared to what they expected, that they’ll go ahead and extend Operation Twist,” he said.

Gross domestic product climbed at a 1.9% annual rate from January through March, down from a 2.2% prior estimate, reflecting smaller gains in inventories and bigger government cutbacks, according to revised Commerce Department figures released yesterday. The report also showed corporate profits rose at the slowest pace in more than three years and smaller wage gains at the end of 2011.

The pace of growth has been “disappointing” and “the headwinds retarding recovery are well known,” Fed Bank of New York President William C. Dudley said this week. He reiterated that he expects growth of about 2.4% over the next four quarters and said Europe’s sovereign debt crisis poses a downside risk to the outlook.