Job Market Dives in Sign of Slower U.S. Economy : Employment: Loss of 101,000 jobs in May is largest in four years. Startling report energizes bond market.
The nation’s job market took a sharp nose-dive in May, with employers cutting 101,000 jobs--the biggest one-month decline in more than four years, and another strong signal that the economy has abruptly downshifted into a slower gear.
Friday’s dismal report from the U.S. Labor Department, while startling many economists, comforted inflation-wary investors and triggered a powerful bond market rally.
A separate survey showed the U.S. unemployment rate edging down to 5.7% last month from 5.8% in April. But that decline was attributed to job hunters giving up the search for work rather than any improvement in the economy.
California’s volatile jobless rate climbed to 8.5% in May from 7.9% the month before. Still, analysts were heartened by figures showing that the state gained 15,300 jobs at the same time employment nationally was shrinking.
David Hensley, regional economist with Wall Street’s Salomon Bros., said Friday’s employment reports bolster hopes that the state “can maintain its modest rate of growth in 1995 in the face of a pronounced slowdown in the rest of the country.”
The darkening outlook for the national economy, meanwhile, was underscored by yet another federal report showing a third consecutive monthly decline in the government’s key forecasting barometer--often an advance signal of a recession. The index of leading economic indicators declined by 0.6% during April, following drops of 0.5% in March and 0.3% in February.
Even so, most analysts don’t believe the nation is tumbling into a recession. While conceding that the economy is losing steam, New York labor economist Audrey Freedman also maintained that “all of the things that would suggest that we’re on the edge of a cliff are just not there.”
Among other things, Freedman pointed out that U.S. productivity has continued to improve while inflation and business inventories have remained under control.
Still, she warned, “if we’re growing very, very slowly, and some external shock develops--maybe something in the world economy--things could get bad very quickly.”
The growing opinion that U.S. economic growth is slowing to a crawl provided a shot of adrenaline to the bond market, pushing up prices while driving down yields on 30-year treasuries to a 15-month low of 6.53%.
Investors were focusing on increasing expectations that the Federal Reserve Board, which has boosted short-term interest rates seven times since early 1994, will reverse course and start moving to reduce rates.
For example, Salomon Brothers came out with a report Friday predicting that the Fed will slash interest rates as soon as early next month--a move that could help slumping, interest-rate-sensitive industries such as auto manufacturing and home-building.
Other analysts expressed doubt that the Fed would act quickly, given its commitment to keeping inflation at bay. “Nothing has fundamentally changed,” said Ken Goldstein, an economist with the Conference Board research group in New York.
Noting that consumer confidence remains relatively high, he predicted that home and auto sales could soon rebound, “assuming there’s not a new round of layoffs.”
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Banks, for their part, generally are standing pat on lending rates in the absence of a signal from the Fed. One small Midwestern bank that often leads the pack, Southwest Bank of St. Louis, cut its prime lending rate Friday to 8.5% from 9%, but no major lenders followed suit.
The Clinton Administration continued to hew to its position that the economy is successfully moving from a period of robust growth into more modest expansion, a so-called “soft landing” engineered by the Federal Reserve Board’s tight-money policy.
“The momentum of the economy is still quite good,” U.S. Labor Secretary Robert B. Reich said in an interview. Even though various recent economic reports provide evidence of the slowing pace of business activity, “I don’t see much risk of a recession,” Reich said.
Still, Friday’s economic data and other recent reports provide broad evidence of a slowdown.
Wage gains, for example, have been slim. Average hourly earnings totaled $11.38 last month, a decline of 2 cents from April.
The nation’s reported loss of 101,000 jobs largely reflected cutbacks in manufacturing and construction. It was the largest one-month drop since a plunge of 215,000 in April, 1991. May’s losses followed an April decline of 7,000, which many economists initially wrote off as a one-month aberration.
Last month’s losses “were widespread among manufacturing industries, with only the electronic components industry continuing to show job gains,” Katherine G. Abraham, commissioner of labor statistics, told a news conference. A shorter workweek also accompanied the slowdown in manufacturing.
Even the services sector, a driving force in the modern economy that includes everything from haircuts to tax preparation, is sluggish, she said.
California’s jobless rate, at 8.5%, continued to be the highest among the 11 big states whose statistics are released in tandem with the national figures. Next came New Jersey, at 6.5%, and New York, at 6.3%. The lowest rates came in North Carolina, 4.3%, followed by Ohio, 4.7%, and Massachusetts, 5%.
While unemployment rates are calculated from a relatively small sampling of households across the country, analysts increasingly are focusing on a broader survey that estimates job totals on the basis of data drawn from employers’ payrolls.
And in California, the payroll survey showed most of the state’s 15,300 increase in jobs coming from the retailing and services sectors of the economy. At the same time, the manufacturing category, along with finance, insurance and real estate, posted losses.
Analysts noted that the continued job gains in California come as other indicators, particularly real estate activity, look increasingly grim. Still, some argued that increased employment and the prospect of declining interest rates could translate into a pickup in the real estate market and other parts of the state economy.
Ted Gibson, economist for the state Department of Finance, said the May report was especially encouraging in that the state economy still was hampered by weather-related problems. For instance, he blamed job losses in food-processing on storms earlier this year.
“It’s a pretty good report for California, especially in light of what’s happening to the nation,” he said.
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Estimates released for Los Angeles County--whose jobless numbers, unlike the federal and state data, are not adjusted for seasonal trends--showed unemployment holding in May for a second consecutive month at 6.8%. In comparison, the state jobless rate unadjusted for seasonal trends stood at 8%.
The county unemployment figures, however, are widely discounted by analysts because of the small sampling of households on which they are based.
“Things still look bad,” said Vincent M. Canales, labor market analyst for the California Employment Development Department. “I don’t think we’re seeing things turn around.”
He said recent job gains in the motion picture industry are unlikely to offset the impact of anticipated aerospace industry layoffs along with recent employment cutbacks in computer equipment manufacturing.
The latest data, however, showed employment in the county rising by 9,000 to just over 4 million in May. The number of unemployed also climbed, by 1,000, to 297,000 workers.
Rosenblatt reported from Washington and Silverstein from Los Angeles.
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