Jobs numbers for May squelch some economic optimism
Private sector businesses added just 41,000 new jobs in May, leading Republicans to criticize Obama's economic plan. But analysts see a few bright spots.
Other than a raft of temporary Census Bureau jobs, employers showed little enthusiasm to add to their payrolls last month.
On Friday, in a disappointing report, the Bureau of Labor Statistics said the economy gained 431,000 jobs and the unemployment rate slipped to 9.7 percent, down from 9.9 percent in April. The unemployment rate fell because there were fewer people looking for work, not because there was a jump in employment – private sector businesses added only 41,000 jobs last month, far fewer than economists had expected.
The May jobs numbers may have deeper ramifications. They confirm to the Federal Reserve that the economic recovery remains fragile, prompting some economists to speculate that the Fed will not raise interest rates for the rest of the year. In addition, May's numbers might give impetus to a new fiscal stimulus bill working its way through Congress. And investors may have further doubts about the strength of the economic recovery, a fear that weighed on the stock market Friday morning which slumped after the jobs report came out. At 11 a.m., the Dow Jones Industrial Average was down 184 points.
The White House tried to put a positive spin on the numbers. President Obama, visiting a truck leasing company in Hyattsville, Md., said the numbers show the economy was moving in the right direction. He noted the economy had added jobs for six of the last seven months.
“The question is how to keep it going,” said Mr. Obama, who pointed to his policy to give tax incentives to businesses that hire new workers and add new equipment.
Congress may have something to say about trying to get more jobs going, since they are considering a new spending bill.
“[Congress] was going to pass a stimulus bill anyway, but this may result in a bigger bill,” says Mr. Zandi.
For example, lawmakers have already stripped out a section of the bill that would give additional aid to state and local governments. In the latest jobs report, employment in state governments, excluding education, fell by 13,000 last month. So far this year, state and local governments have shed 250,000 jobs. “That’s only going to intensify,” says Zandi.
Republicans were quick to claim that the report shows the Obama economic plan is not working. “The job market clearly is not improving, and Congress needs to take a different tack, such as making the current tax rates permanent and cutting spending,” said economist Diana Furchtgott-Roth, a fellow at the Hudson Institute, in a statement released by the Republicans.
Although the jobs report was not as good as expected, economists cautioned that it represents only one month.
“The trends still look pretty good,” says Bob Brusca, an economist with his own consulting firm, Fact & Opinion Economics in New York. “Often we get a weak month sandwiched in between good months, so the numbers can be somewhat irregular.”
Within the report were some improvements. For example, the average hourly work week for all employees on private nonfarm payrolls rose by 0.1 percent to 34.2 hours. While that may seem small, every 0.1 increase in hours worked is equal to 300,000 jobs, Zandi says. “It’s a good leading indicator of future job growth,” he adds.
In addition, hourly earnings rose 0.3 percent, their best showing in five months. The longer work week combined with higher wages increased payrolls by 0.7 percent, calculates Nigel Gault, chief economist at IHS Global Insight in a commentary. “Combine that with consumer prices, which probably fell in May, and that means a big increase in purchasing power for those with jobs,” he wrote.
Next month, when the June employment numbers are announced, most of the temporary Census jobs will be gone. “It would not be surprising to see 250,000 layoffs by the Census Bureau,” says Sung Won Sohn, an economist at the Smith School of Business, California State University, Channel Islands.
If the June layoffs are that high, he says, it would not be surprising for the June employment numbers to be negative.
Mr. Sohn, however, does not think a backsliding in employment will send the US economy into a second recession. “The European economic situation would have to get much worse for that happen,” he says. “But a negative jobs number by itself will not send us into a double dip recession.”