Published June 01, 2012
Job growth braked sharply in May and the unemployment rate rose for the first time since June, putting pressure on the Federal Reserve to ease monetary policy further to shore up the sputtering recovery.
The Labor Department report on Friday, which showed employers added a paltry 69,000 jobs to their payrolls last month, the fewest since May last year, is also troubling news for President Barack Obama ahead of November's elections.
The unemployment rate rose to 8.2 percent from 8.1 percent partly because people flocked into the labor market.
Economists polled by Reuters had expected nonfarm payrolls to increase 150,000 and the jobless rate to hold steady at 8.1 percent.
While unseasonably warm weather, which brought forward hiring into the winter months, has been blamed for the step back in March and April, the latest report hinted at more fundamental weakness in the economy.
"Some had believed that we had decoupled from China slowing and all the problems in Europe, but that seems to be short-sighted," said Malcolm Polley, president and chief investment officer of Stewart Capital Advisors in Indiana, Pennsylvania. "We're slowing alongside the rest of the world."
Employers added 49,000 fewer jobs than previously estimated in March and April. The report further eroded confidence, coming on the back of a raft of soft regional factory surveys and a worsening of the debt crisis in Europe.
Data on Friday also showed China's vast factory sector lost momentum in May.
Economists have blamed Europe's prolonged financial crisis and slowing Chinese growth for sluggish factory activity in May, which has evoked memories of the slackening of job growth in the summer of 2011 when the recovery nearly stalled.
Stock index futures fell sharply after the jobs data. Government debt yields also fell sharply, with the 10-year note below 1.5 percent. The dollar also fell against the yen.
However, a survey of households showed stronger employment gains. Though the unemployment rate rose, as more people sought work.
The weak payrolls report could cause the Federal Reserve to move closer to launching a third round of bond purchases.
"This puts the Fed firmly in play and they will likely feel compelled to respond. The missing ingredient preventing the Fed from action had been the equity market, but now we are seeing it softening," said Tom Porcelli, chief economist at RBC Capital Markets in New York.
The level of employment is about 5 million jobs below where it was in December 2007, when the economy fell into recession.
Analysts say the economy needs to create roughly 125,000 jobs a month just to keep the unemployment rate steady.
The labor force participation rate - the share of working-age Americans who either have a job or are looking for one - rose to 63.8 percent after dropping to a 30-year low in April.
Job gains were weak across the board last month, with the private sector adding only 82,000 positions. Government payrolls dropped by 13,000, dragged down by ongoing belt-tightening by local governments.
Construction employment fell 28,000 in May, the fourth straight decline. Manufacturing, the recovery's star performer, added 12,000 jobs.
Given the high unemployment rate, average hourly earnings rose only two cents and the average workweek fell to 34.4 hours.
Slower income growth is holding back consumer spending. A report from the Commerce Department showed consumer spending rose 0.3 percent in April after gaining 0.2 percent in March.