Companies slash hiring as government cuts continue
WASHINGTON – A bleak jobs report suggests the recovery from the great recession will be longer and bumpier than many economists had envisioned.
Most economists say job growth should strengthen later this year as gasoline prices drop further and the economy recovers from the effects of natural disasters in the U.S. and abroad. But the unemployment rate in May inched up to 9.1 percent from 9 percent, the Labor Department said Friday.
The Conference Board, a business research group, predicts the rate will be 8.5 percent at the end of next year. That would mean President Barack Obama would face a higher unemployment rate than any president running for re-election since World War II.
“The recovery has not been derailed, but it’s slow,” said Michelle Meyer, an economist at Bank of America Merrill Lynch. “We’re still in a muddle-through period.”
Only 54,000 jobs were created in May, the fewest in eight months. By contrast, an average of 220,000 jobs were created in each of the previous three months. Private companies hired only 83,000 workers in May – the fewest in nearly a year – while state and local governments cut 30,000 jobs.
The Dow Jones industrial average finished down 97 points, its third straight loss. The Dow, Standard & Poor’s 500 and Nasdaq composite have all declined in each of the past five weeks, the longest losing streak since mid-2008.
Several chronic problems are weighing on the economy. Home prices are still falling. The average worker’s pay isn’t keeping up with inflation. Cutbacks in spending by state and local governments are contributing to slower growth, even in the private sector. And members of Congress are preparing to cut spending.
Gas prices climbed to nearly $4 a gallon this spring. They’ve since declined to about $3.79 and are expected to fall more, possibly freeing consumers to spend more on goods such as cars, appliances and furniture. Consumer spending accounts for about 70 percent of the economy.
But even if gas prices dip, they’ll likely remain high and continue to squeeze consumers and the industries that depend on them. For example, companies that rely heavily on motorists – like hotels and restaurants – cut employment in May.
Even economists who think hiring will pick up don’t expect it to grow very fast.
Heidi Shierholz, an economist at the liberal Economic Policy Institute, expects employers to add about 150,000 jobs a month for the next few months. Up to 300,000 new jobs a month would be needed to significantly drive down the unemployment rate.
Among the deepest job cuts were those in local governments, which slashed 28,000 last month, the most since November. Nearly 18,000 were in education. Cities and counties have cut jobs for 22 straight months. Since September 2008, 446,000 jobs have vanished.
There’s little appetite on Capitol Hill for more stimulus spending. And by the end of this month, the Federal Reserve will end its most recent drive to pump money into the economy.
White House economist Austan Goolsbee said the burden is now on the private sector.
“You’ve seen corporate profits high,” he said. “It’s now time to get that translated … into the adding of jobs, building of factories and buying of equipment here at home.”
The small overall job growth wasn’t enough to prevent the unemployment rate from rising, largely because more people started looking for work in May and people aren’t counted as unemployed unless they’re looking for a job. So the actual number of unemployed grew to 13.9 million, from 13.7 million.
Some bright spots did emerge in the May report. Professional and business services added 44,000 jobs, most in accounting, information technology services and management.
David Kelley, chief market strategist with J.P. Morgan funds, suggested that pent-up demand for cars and other big-ticket items should continue to grow as the economy improves.
“Consumers will be in better shape, and banks are gradually lending a little easier,” Kelley said. “There are plenty of reasons to believe that growth will pick up.”
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