Whatever momentum the U.S. economy had earlier this year is gone, snuffed out by higher fuel prices and the disruption of global trade caused by the Japanese earthquake.
American employers added a mere 54,000 jobs in May, the weakest showing since a string of four consecutive monthly declines in hiring ended in October, 2010, according to government data released Friday. The unemployment rate rose to 9.1 per cent, the second monthly increase after the jobless rate had dropped one percentage point over four months, to 8.8 per cent in March.
The increase in payrolls was well below the 165,000 jobs projected by Wall Street, a forecast that was itself considerably lower than even a couple of weeks ago, as analysts made last-minute corrections to their outlooks after a run of negative data this week.
The Dow Jones industrial average and the Standard & Poor's 500-stock index slumped to their lowest levels since March, as analysts variously described the labour report as "bleak," "terrible," and "very weak." The U.S. dollar fell against a basket of currencies, and Treasury yields declined as investors sought the relative security of U.S. debt.
The most recent U.S. data describe an economy bereft of confidence, suggesting economic growth will remain slow because companies are unwilling to take the risks that would drive a faster expansion.
As a result, the seven million people who have lost work since the start of 2008 will continue to languish.
Companies added workers for an eighth month, the longest stretch of uninterrupted monthly jobs growth since 2006. Yet the gains are unspectacular by historical standards, and there is little indication that employers are willing to push through headwinds such as higher energy prices.
Productivity rates in the United States are at high levels, an indication that bosses would rather squeeze more out of existing workers than commit to new salaries and benefits. In May, businesses reduced temporary workers, a bad omen because the addition of short-term workers tends to precede sustained hiring of full-time employees.
"I'm gun shy," said Peter Bredlau, president of Quality Services Associates Inc., a small construction company based in Roselle Park, N.J., that these days is making most of its money from servicing heating and air conditioning systems.
A little more than a year ago, Mr. Bredlau said he had to write off debt owed to him of about $30,000 (U.S.), a significant sum for a company that employs fewer than 20 people.
"My wounds are still a bit raw," said Mr. Bredlau, who no longer accepts work without a significant down payment. "History is telling me I have to be careful."
Coaxing people like Mr. Bredlau to take a leap of faith is not only an economic problem, but a political one, especially for U.S. President Barack Obama.
No president has won a second term when the unemployment rate was higher than 7.2 per cent since Franklin Delano Roosevelt. To win in November, 2012, Mr. Obama almost certainly will have to test history.
Matt McDonald, a partner at Washington-based consultancy Hamilton Place Strategies and a former White House staffer, argues that Mr. Obama's chances of success would be bolstered considerably if the unemployment rate were to dip below 8 per cent by election day. Such a reading would squelch criticism that the President's policies are hurting the economy, and show up as considerable improvement from the 10.1-per-cent peak in October, 2009.
The latest numbers put Mr. Obama well off the Hamilton Place target. Before Friday's report, Mr. McDonald calculated the economy needed to generate an average of 209,000 a month to drop the jobless rate below 8 per cent by November, 2012. Over the eight months of employment growth through May, employers created an average of 150,000 jobs.
Manufacturing employment fell 5,000 in May, compared with an average gain of 27,000 over the previous six months, suggesting the destruction of factories in Japan is forcing U.S. facilities to curb production because of a lack of Japanese components.
State and local governments shed 30,000 workers, a trend that is likely to continue as politicians cut spending to shrink inflated budget deficits. Private-sector service providers added 80,000 positions in May, compared with an average increase of 152,000 over the previous six months, according to Kevin Logan, chief U.S. economist at HSBC in New York.
"Today's weak report raises more concerns about the underlying strength of the economy," Mr. Logan said in a note to his clients. Previous releases this week showed that home prices, factory production and consumer confidence all deteriorated in May.
Economists at Barclays Capital in New York cut their forecast for economic growth in the second quarter to a 2-per-cent annual rate from a previous estimate of 3.5 per cent. Many analysts said the weaker economic data would force the U.S. Federal Reserve Board to refrain from raising borrowing costs for longer than previously anticipated.
There was one positive in the May labour market report: Average hourly earnings rose 0.3 per cent to $22.98 in May. It also is important to note that monthly jobs figures are volatile. In 2004, when the U.S. economy was strong, employers added fewer than 50,000 jobs in a month on two occasions.
Tom Porcelli, chief U.S. economist at Royal Bank of Canada in New York, argued that the disappointment with the May jobs data is the result of too many analysts believing the U.S. economy was stronger than it is.
That also is Mr. Bredlau's perspective. Nothing much changed for him in May. In fact, he's just added an employee to help keep up with increased demand for his ventilation services, which is the result of some competitors going out of business.
"I hear we are heading back into recession mode," he said. "I don't believe we ever left."Report Typo/Error