Employment Growth Brakes Sharply in May

Employment Growth By Lucia Mutikani

Employment rose far less than expected in May to record its weakest reading since September, while the jobless rate rose to 9.1 percent as high energy prices and the effects of Japan's earthquake bogged down the economy.

Nonfarm payrolls increased 54,000 last month, the Labor Department said on Friday, with private employment rising 83,000, the least amount since June. Government payrolls dropped 29,000.

Economists polled by Reuters had expected payrolls to rise 150,000 and private hiring to increase 175,000 in May. The government revised employment figures for March and April to show 39,000 fewer jobs created than previously estimated.

The job creation slowdown confirmed the economic weakness already flagged by other data from consumer spending to manufacturing. It could stoke fears about the depth and duration of a slowdown that started early in the year.

The Labor Department said severe weather last month, including tornadoes and flooding, in the Midwest and the South did not materially affect data collection.

It also said that while some workers in those regions may have been temporarily displaced from their jobs, it found "no clear impact of the disasters on the national employment and unemployment data for May."

Economists still believe the lull in activity will be temporary. They cite high gasoline prices, bad weather and disruptions to motor vehicle production because of a shortage of parts from Japan as factors weighing on growth.

"It is clear we have temporarily entered a soft patch," said Christopher Probyn, chief economist at State Street Global Advisors in Boston, before the report.

"Nobody knows how soft and how long, but the best case view is that the fundamentals of the recovery remain intact and the economy will re-accelerate in the second half of the year."

The report provides one of the best early reads on the health of the U.S. economy and it regularly sets the tone for global financial markets. Worries about the pace of the U.S. economic recovery weighed on stocks on Thursday.

While the recent string of weak data has sparked talk about the need for the Federal Reserve to extend its asset purchasing program when it expires this month, analysts believe policymakers will take a soft payrolls report in stride.

Officials at the U.S. central bank regard the current downshift in the economy as temporary.

The Fed has been mapping out a strategy on how to start removing some of the massive stimulus it has lent the economy, and officials have made clear the bar for a further easing in monetary policy is high.


Temporary Factors at Play

"We should keep in mind that we have seen a lot of factors weighing on the U.S. economy in April and May, and should take this report with a pinch of salt," said Harm Bandolz, chief U.S. economist at UniCredit Research in New York.

"We may see some positive surprises in the second half of the year once the impact fades."

High gasoline prices hurt consumer spending in the first quarter, restricting economic growth to a 1.8 percent annual pace after expanding at a 3.1 percent rate in the October-December period.

The economy has regained only a fraction of the more than 8 million jobs lost during the recession. Economists say payrolls growth above 300,000 a month is needed to make significant progress in shrinking the pool of 13.9 million unemployed Americans.

The unemployment rate rose to 9.1 percent last month from 9.0 percent in April as some discouraged workers who had been inspired by the pick-up in hiring in April re-entered the labor market.

"There is so much slack in the labor market it's going to take a long time to get the unemployment rate down to between 6 and 7 percent. That's going to take years," said Stephen Bronars, a senior economist at Welch Consulting in Washington.

That could be bad news for President Barack Obama, whose chances of re-election next year could hinge on the health of the economy, particularly the labor market.

The employment report showed weakness across the board, with the private services sector adding 80,000 jobs last month after increasing payrolls by 213,000 in April.

Within the private services sector, leisure and hospitality fell, showing no boost from McDonald's recruitment of about 50,000 new staff in April, which was after the survey period for that month's payrolls. Spring is traditionally a strong hiring period for McDonald's.

Retail employment, which recorded its largest increase in 10 years in April, fell 8,500 last month. Manufacturing payrolls growth contracted 5,000 last month, while construction employment rose 2,000.

The report showed the average work week steady at 34.4 hours and few signs of wage inflation, with average hourly earnings rising 6 cents.

(Reporting by Lucia Mutikani, Editing by Andrea Ricci)


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