Feeble U.S. Job Growth Stokes Fears of Global Slowdown
For a third year, the economic recovery in the United States is floundering, stoking fears of a global slowdown as the European crisis escalates.
Last month, the nation’s employers added the fewest jobs in a year and the unemployment rate actually rose, the Labor Department reported Friday. May was not a fluke either. It was the third consecutive month of disappointing results.
The weakening recovery is a serious vulnerability for President Obama as he faces re-election and it provides traction to his Republican rival, Mitt Romney, who says the administration has not done enough to strengthen the economy. Because Washington remains deeply divided over how best to stimulate growth, the report increases the pressure on the Federal Reserve to take further action on its own.
The United States gained a net 69,000 jobs in May, for an average of 96,000 over each of the last three months. That is down from a 245,000 gain on average from December through February. The unemployment rate rose to 8.2 percent in May from 8.1 in April, though largely because more people began looking for work. And there was more bad news: job gains that had been reported in March and April were revised downward.
Economists can explain away a month or two of dismal numbers, but a three-month run is difficult to ignore. The economy now seems to be following the spring slowdown pattern of the last two years — a bright spot of accelerating growth followed by a slump. The news on Friday even raised mentions of a possibility that dogged last year’s forecasts but did not come to pass: another recession.
The report on American jobs added to the global pall that has deepened with Europe’s debt crisis and slowing growth in China and India. Global financial markets, weak in early trading on Friday, sank further on the report. The Dow Jones industrial average lost 2.22 percent, or 274.88 points, wiping out its gains for the year, and the main index of the German stock market closed down 3.4 percent.
Yields on United States and German government bonds also slumped as investors bid up the bonds’ prices looking for safety. The 10-year Treasury yield fell to another record low, 1.46 percent, and the German two-year bond fell below zero.
Steve Blitz, chief economist of ITG Investment Research, said that the big improvements over the winter were not a true acceleration but simply a catch-up after last year’s dip. The underlying pace of the domestic economy is a slog, driven by manufacturing and restrained by slackening global demand. “The reason why it was never going to build momentum going forward was simply because the rest of the world was slowing down,” he said.
Once again, uncertainty became a dominant theme. “Manufacturers are very concerned about Europe because a blowup in Europe means a global slowdown,” said Ellen Zentner, the senior United States economist for Nomura, the financial services firm. “It hasn’t translated into layoffs — businesses are just hiring less.”
Charles Ingram, vice president for marketing and sales at Eriez Magnetics, which produces industrial equipment, said the company was still hiring and still getting orders, but watching developments closely. “We’re very diverse, so if one or two industrial markets are down, we’re O.K.,” he said. “But if there’s a general recession, that would be a real problem, and that’s certainly a possibility.”
Republicans immediately seized upon the jobs numbers as an opportunity to criticize Mr. Obama’s economic policies.
Mr. Romney called the report a “harsh indictment of the president’s handling of the economy” and “devastating news for American workers and American families.”
The White House emphasized that the report showed the 27th month of job gains, and called on Congress to pass the president’s numerous job-related proposals.
The May jobs report showed gains in health care, transportation and warehousing, and wholesale trade, while construction jobs fell by a seasonally adjusted 28,000. Even some bright spots, like booming auto sales, failed to meet expectations or to bolster manufacturing employment by much — only 12,000 jobs.
Once again, government reduced workers, driven by cutbacks at the local level.
“In February or March, I thought the labor market had achieved escape velocity,” said Patrick J. O’Keefe, the director of economic research at J. H. Cohn, a consulting firm. “It appears to me now that that was a premature call.”
The gloomy news drew attention to the Federal Reserve, which could choose to step up its stimulus campaign. Several members of the Fed’s policy-making committee have said in recent days that they were not inclined to change current policy, but that position has always been contingent on continued growth.
The economy needs to grow by about 125,000 jobs each month just to maintain the current unemployment rate.
When the Fed committee next meets, in late June, it will face the possibility that the recovery has failed once again to take off.
Fears of a global slowdown showed up in other economic data on Friday. Cooling exports dampened the nation’s major manufacturing index, though it remained in positive territory. That news came on the heels of several worrisome reports like falling consumer confidence, an uptick in new claims for unemployment benefits and a downward revision of the country’s overall economic growth in the first quarter, to a 1.9 percent annual rate from 2.2 percent. Income grew slightly between March and April, another government report said, though consumer spending grew a little more — a situation that economists say cannot last.
The jobs report is based on two surveys, one of businesses and the other of households. The household survey showed a net gain of 422,000 in the number of people employed, and also an uptick in the percentage of the working-age population who have jobs.
But David Rosenberg, the chief economist with Gluskin Sheff, an investment firm, said much of that gain was in part-time work, while the number of full-time workers fell.
“Even the good news in this report was bad,” he said.
Some analysts said it was too soon to declare a significant slowdown. The recovery’s roller-coaster trajectory may be largely illusory, the product of seasonal adjustment distortions and, this year, the unusually warm winter, Ms. Zentner said.
Many economists say the weather effect, which caused some growth to occur earlier in the year than it otherwise would have, should be over by now. Ms. Zentner said, however, that her research showed that historically, May is the month that is most reduced after a warm winter. Seasonal adjustments were also making the winter look better than it was and the spring look worse.
“What the seasonal bias has done is it’s made the recovery look like a stop-start recovery,” Ms. Zentner said. “Instead, the pace of the recovery has been very steady — very moderate, and disappointing, but steady.”
The number of long-term unemployed, those who have been looking for work for more than half a year, rose by 300,000, even as hundreds of thousands of jobless workers lost their unemployment checks because of cutbacks. The long-term unemployed have the most difficulty finding jobs, and many of them say they have not seen any improvement in the job market.
“Nobody has lists and lists of hundreds of available jobs,” said Glen Barry of Carmel, N.Y., who worked for the government at the county level for 25 years as a computer operator and was laid off in December 2010. “A lot of people work a job and a half now. Instead of having four people doing the work, they have two people doing the work.”