Discouraging job growth batters stocks
The nation’s unemployment came down a notch in May thanks to government hiring of temporary census workers, but private-sector employers addedA a mere 41,000 new jobs -- triggering a huge sell-off on Wall Street and fresh anxiety about the economy.
The Dow Jones index plunged more than 300 points, or 3.2%, closing below the 10,000 benchmark for the second time in two weeks.
“It’s a significant setback,” said Bart van Ark, chief economist at the Conference Board, a business membership and research group in New York, assessing the jobs results.
On the surface, Friday’s report from the Labor Department looked strong: a net total of 431,000 jobs created during May, the most in a decade. That helped nudge the unemployment rate down to 9.7% from 9.9% in April.
But almost all of the gain resulted from a surge of hiring by the federal government, which brought on 411,000 new short-term workers for the decennial census count.
That means the jobless rate is likely to inch up again this summer as the census jobs, which are mainly part-time and pay $10 to $25 an hour, begin to disappear.
For a healthy, sustained recovery in the job market, private businesses need to make substantial hires, and in recent months momentum appeared to be building in that direction, with the private sector adding 158,000 jobs in March and 218,000 in April. But in May, that fell back sharply.
With the exception of manufacturing, none of the higher-paying sectors such as information, finance and professional and technical services added any jobs over the month, continuing a trend this year. Construction payrolls also fell back in May after stabilizing earlier in the spring.
The broader economy may be growing, “but it’s not going to be strong enough to create a lot of jobs,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago, who was expecting as many as 300,000 new private-sector jobs in May.
Given that businesses had cut to the bone during the recession and that the harbinger temporary-staffing industry had been growing for months, “all the arrows started to converge,” he said. “And then this report came out. I can’t think of a bigger disappointment.”
Although Ablin said Friday’s report “dented my forecasts,” others cautioned against reading too much into one month’s data, noting that recoveries can be choppy.
President Obama, speaking Friday morning shortly after the release of the jobs report, said “our recovery is still in its early stages and ... there are going to be ups and downs in the months ahead.”
The fact that many of the new jobs last month come from temporary hiring by the Census Bureau shouldn’t cancel out the good news, he said. “Even if you put those temporary jobs aside, there’s no doubt we saw another month of private-sector job growth.”
Speaking at a truck factory in Maryland, Obama repeated an economic message that he has taken to different parts of the country in recent months -- that the 2009 federal stimulus package and his other policies are working and that the national economy is bouncing back from a crisis that early last year was costing 750,000 jobs a month.
He urged Congress to pass additional measures to reduce taxes for small businesses and to extend unemployment benefits for millions of workers.
The number of jobless workers remained at about 15 million in May, but the average length of unemployment rose to a new high of 34.4 weeks, according to Friday’s report. And a record 46% of the officially unemployed -- or nearly 6.8 million people -- have been without work for more than six months.
“We have to pass the [unemployment insurance] benefits; we can’t leave them to this kind of labor market,” said Heidi Shierholz, an economist at the Economic Policy Institute, a liberal think tank in Washington.
Analysts and investors, watching the stock market plunge Friday in reaction to the jobs report as well as more bad news from Europe, echoed the calls for more government stimulus to bolster employment and keep the budding economic recovery from derailing.
“If I was president, I think I’d be cutting taxes and making more fiscal stimulus targeted to employment,” said Phil Orlando, chief equity strategist at Federated Investors in New York. Orlando remains optimistic that the economic and labor market recovery will stay on track.
He suspects a major reason businesses held back from hiring in May was the spate of grim geopolitical headlines in recent weeks -- the sovereign debt crisis in Europe, potential slowing in China’s economy and the standoff in the Korean peninsula as well as the widening oil disaster in the Gulf of Mexico.
One clear bright spot has been manufacturing, which has led the economic recovery. In May, factory payrolls rose for the fifth straight month, with an additional 29,000 positions on top of the 97,000 added in the previous months of this year.
But that growth has been fueled partly by some special factors that are now fading. That includes a restocking of inventory that was slashed during the recession, as well as a boost to the housing industry from the first-time homebuyers’ tax credit.
What’s more, the recent troubles in Europe have resulted in a surge in the value of the dollar and slower growth prospects there, which could weigh on future American export orders -- and hiring.
In the currency markets, the euro gave up 2% against the dollar Friday, ending the day on Wall Street at $1.19, a four-year low.
“My hunch is that you’ll see a lull in the summer,” said David Huether, chief economist at the National Assn. of Manufacturers. What happens to hiring after that, he said, will depend on the strength of businesses and consumers.
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Christi Parsons of the Washington bureau contributed to this report.
