Job growth falters, dimming outlook
Gloomy report setback for Obama
WASHINGTON – The U.S. jobs engine sputtered for the third straight spring, raising the stakes in the presidential election and auguring grim consequences for millions of workers and a world economy already grappling with Europe’s woes and a weakening in China.
The May employment report – showing the unemployment rate rising to 8.2 percent and a third straight month of faltering job growth – prompted analysts to lower their forecasts for hiring for the rest of this year.
It also increased pressure on the Federal Reserve to take new steps to spur economic activity.
“It feels like the last straw,” said Julian Jessop, chief global economist at Capital Economics in London. “Here is the economy that’s supposed to be doing relatively well, and it’s barely growing any jobs and unemployment is rising again. The outlook is even gloomier than we thought.”
Friday’s Labor Department report pummeled stocks on both sides of the Atlantic and sent U.S. Treasury yields to an all-time low in a flight to safety. The Dow Jones industrial average closed down 274.88 points, or 2.2 percent, at 12,118.57. The Dow is off 0.8 percent for the year; two months ago, it was up more than 8 percent for the year.
The employment statistics for May were poor almost across the board. Construction, government and leisure payrolls sagged in particular, and workers’ average hours dropped. Overall, employers added 69,000 jobs – half the number analysts expected and the slowest job growth in a year.
The dismal report was an ominous development for President Barack Obama, whose race with Republican Mitt Romney has been locked for weeks in something close to a dead heat. It emphasized how much both candidates are dependent on economic forces over which they have little control.
Obama had started off this year with a big lift from an acceleration in job growth. From December to February, the economy added about 250,000 jobs each month. But job creation in the past three months has fallen to just 96,000 a month on average, according to Friday’s new data and revisions.
Obama’s campaign has been heavily dependent on a feeling by many voters that the economy, while not yet good, was at least getting better. If that measured optimism is replaced by renewed pessimism, Romney would gain substantial strength.
Speaking to an audience at a Honeywell factory in the Minneapolis area, Obama said the American economy was facing “serious head winds,” such as the eurozone debt crisis. But he also repeated his reminder of how bad the economy was when he took office.
“We knew it would take time,” the president said of the recovery. “We knew there would be ups and downs along the way.”
Romney called the latest news a “harsh indictment” of Obama’s presidency.
“Their policies have made it harder for the economy to recover,” he said in an interview on CNBC.
The sharp deceleration in job growth partly reflects an artificial boost in payrolls during the winter because of unseasonably warm weather. The May jobless rate ticked up from 8.1 percent in April, after steadily declining since last August when the unemployment figure was 9.1 percent.
Many more people entered the labor force last month, but the number of unemployed rose by 220,000 as technology firms, among others, recently have stepped up layoffs.
Since the official start of the recovery three years ago, the economy has advanced in fits and starts. It has slowed sharply in each of the past two years around springtime amid domestic political troubles and global shocks such as Europe’s debts and revolts in Arab nations.
“Truth be told, we thought we’d begin to see some firming in today’s report,” said Phil Orlando, chief equity strategist at Federated Investors. “For this number to come in at 69,000 was an absolute disaster.”
If there’s a silver lining in the spate of bad global economic news lately, he said, it’s that energy prices have fallen and consumer prices in general have flattened, giving some relief to consumers. The latest news adds to the likelihood that the Fed will take new action to stimulate the economy.