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Job growth disappoints on weak private sector hiring
June 4, 2010 / 4:16 AM / in 7 years

Job growth disappoints on weak private sector hiring

WASHINGTON (Reuters) - Hiring by U.S. private employers slowed sharply in May, a setback for the economy’s recovery, even as temporary census hiring pushed overall payrolls growth to its biggest increase in 10 years.

<p>An empty jobs board is seen at the Mohawk Valley Resource Center for Refugees in the economically depressed upstate New York city of Utica April 27, 2010. REUTERS/Mike Segar</p>

Nonfarm payrolls rose by 431,000 jobs, as private employment, a barometer of underlying labor market strength, climbed just 41,000, the Labor Department said on Friday.

The jobs data was well below expectations, but even so analysts said they did not believe the economy would slip back into recession. Company work forces are already spread too thin, and companies cannot increase working hours indefinitely to maintain output, they said.

“We do not yet have the makings of a double-dip, and we still believe that private sector job creation will gradually improve over the rest of the year,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

But disappointment over the jobs helped drive U.S. stocks to their lowest close since February on fears the economy will recover only by fits and starts. The blue chip Dow Jones industrial .DJI closed below the 10,000 level. Hints that Hungary had little chance of avoiding a Greek-style debt crisis also hurt sentiment.

Prices for U.S. government debt jumped as investors sought safety, and the dollar hit new four-year highs against the euro.

Also on Friday, the chief executive of Wal-Mart Stores Inc (WMT.N) said the still-weak U.S. labor market is affecting customers of the world’s largest retailer, even as the company said it will hire more than 500,000 workers in the next five years in the United States and around the globe.

“I would not say that I could predict that there will be any decline” in the economy, Wal-Mart CEO Mike Duke said. “But I still sense a great deal of pressure on the customer base.”

PRIVATE HIRING WELL BELOW ESTIMATES

Financial markets had expected private employers to add 190,000 jobs in May after increasing by 218,000 in April.

Last month, the government hired 411,000 workers for the decennial population count, the dominant factor behind the biggest increase in payrolls since March 2000.

It was the fifth monthly increase in employment. The report also showed the unemployment rate dropped to 9.7 percent from 9.9 percent in April, although the decrease reflected workers leaving the labor force. Payrolls had been expected to rise 513,000, with the jobless rate dipping to 9.8 percent.

President Barack Obama, whose popularity has been dented by high unemployment, told workers in Maryland the labor market and economy were still moving in the right direction.

“While we recognize that our recovery is still in its early stages and that there are going to be ups and downs in the months ahead, this report is a sign that our economy is getting stronger by the day,” he said.

However, public anxiety over unemployment and the broader economy could cost the Democratic Party dearly in November’s congressional elections, with voters in an anti-incumbent and anti-Washington mood.

The high jobless rate also suggests the U.S. Federal Reserve will be in no rush to raise benchmark interest rates.

Payrolls data for March and April was revised to show 22,000 fewer jobs created than previously reported. The report showed that in May employers opted to increase hours rather than hire new workers.

“I suspect what has happened is a lot of firms had geared up to what they thought was a sustainable pace of growth and they are happy with what they have now. They are not continuing to add to payrolls,” said John Silvia, chief economist at Wells Fargo Securities in Charlotte, North Carolina.

The average workweek increased to 34.2 hours from 34.1 hours in April. Manufacturing workers saw their workweek rise 0.3 hour to 40.5 hours.

Analysts said the gain in hours was positive as employers will first increase working hours before adding payrolls. Longer working hour will also support second-quarter growth and mean more money, which is good for consumer spending.

The economy has now grown for three straight quarters and the recovery from the worst recession since the Great Depression of the 1930s remains on a moderate upward path.

The growth in the economy, however, has been insufficient to bring the 15 million jobless Americans back into the work force, 46 percent of whom had been without a job for six months and more in May.

With unemployment remaining stubbornly high, Americans are increasingly relying on government help for basics. In March, a record 40.2 million people were receiving food stamps, the Agricultural Department said on Friday.

Outside the census, hiring slowed significantly in May from the prior months. The dominant services sector saw payrolls increase 37,000 after surging 156,000 in April.

In the goods-producing sector, there were only 4,000 jobs created in May following 62,000 jobs in April. Construction employment fell by 35,000 after gaining 14,000 in April.

“Many small companies are still unable to expand payrolls because of restricted access to credit, even if their orders are improving,” said Sophia Koropeckyj, senior economist at Moody’s Analytics in West Chester, Pennsylvania.

Recruitment for the population count saw government employment rising 390,000, overshadowing the drag from job cuts in cash-strapped states and localities.

Job growth is critical to sustain a rebound in consumer spending, especially now that recovery in Europe is under threat from government spending cuts to bring down huge budget deficits.

The debt crisis has bruised stock markets, but analysts so far see a limited impact on the U.S. economy.

Additional reporting by the White House team, Brad Dorfman in Fayetteville, Arkansas, and Chuck Abbott in Washington; Editing by Leslie Adler

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