WASHINGTON — The American economy is in trouble again.
Employers in the United States added only 69,000 jobs in May, the fewest in a year and not even close to what economists expected. For the first time since last June, the unemployment rate rose, to 8.2 percent from 8.1 percent.
It was the third month in a row of weak job growth and further evidence that, just as in 2010 and 2011, a winter of hope for the economy has turned to a spring of disappointment.
"This is horrible," said Ian Shepherdson, chief economist at High Frequency Economics, a consulting firm.
The job figures, released Friday morning by the Labor Department, dealt a strong blow to President Barack Obama at the start of a general election campaign that will turn on the economy.
They also deepened the pessimism of investors, who even before the report was released were worried about a debt crisis in Europe with no sign of solution and signs of a slowdown in the powerhouse economy of China.
The Dow Jones industrial average fell 275 points, its worst day of the year, and for the first time was down for 2012. The Standard & Poor's 500 index is almost 10 percent below its 2012 high, the traditional definition of a market correction.
Mitt Romney, who on Tuesday cleared the number of convention delegates required to win the Republican presidential nomination, told CNBC that the report was "devastating."
He called for an emphasis on energy development, pledged to "kill" the health care overhaul that Obama saw through in 2010 and said he would reduce taxes and government spending. The clearest fix for the economy, he said, was to defeat Obama.
"It is now clear to everyone that President Obama's policies have failed to achieve their goals and that the Obama economy is crushing America's middle class," said Romney, the former Massachusetts governor.
Obama, in Minnesota, pushed a proposal to expand job opportunities for veterans returning from Iraq and Afghanistan. He said that the economy is not creating jobs "as fast as we want" but vowed that it would improve.
"We will come back stronger," he said. "We do have better days ahead."
Alan Krueger, head of the president's Council of Economic Advisers, pointed out that the country has added jobs for 27 months in a row, including 4.3 million jobs in the private sector.
Underscoring the challenge for Obama with five months to go in the campaign, a May poll by The Associated Press and GfK, a research company, showed that 52 percent disapproved of Obama's handling of the economy while 46 percent approved.
Some financial analysts said that the dismal job figures put pressure on the Federal Reserve to take additional steps to help the economy, but it was not clear how much good the Fed could do beyond trying to inspire confidence.
The central bank has already kept the short-term interest rate it controls at a record low of almost zero since the fall of 2008, during the financial crisis, and pledged to keep it there through late 2014.
It has undertaken two rounds of massive purchases of government bonds, starting in March 2009 and November 2010, to help drive long-term interest rates down and stimulate stock prices. Another program to lower long-term interest rates, known as Operation Twist, was announced last September and ends this month.
But low interest rates, other analysts pointed out, are not the problem. An investor stampede into bonds on Friday drove the yield on the 10-year U.S. Treasury note as low as 1.44 percent, the lowest on record.
Fed Chairman Ben Bernanke testifies next week before a joint committee of Congress, and the Fed next meets June 19 and 20.
Complicating the challenge for the economy, tax cuts passed under President George W. Bush will expire after Dec. 31, as will a cut in the Social Security payroll tax. More than $100 billion in automatic spending cuts to defense and domestic programs also kick in Jan. 1. Less money in consumers' pockets next year and less spending by the government would be a significant drag on the economy.
Congress could extend the tax cuts, but Republicans control the House, and they and Obama disagree over whether to do so for all or for everyone but the wealthiest Americans.
The Congressional Budget Office has said the tax increases and spending cuts would cause the economy to shrink at an annual rate of 1.3 percent in the first half of next year. The economy grew at a 1.9 percent annual rate in the first quarter of this year.
And there is little significant action that the White House can take on its own.
The job figures in the United States added to evidence that the world economy is in peril again.
Spain insisted Friday that it is financially stable, but its borrowing costs are creeping close to the 7 percent level that forced Greece, Ireland and Portugal to seek international bailouts.
Europe has grappled for more than two years with the crippling debt owed by many of its countries, and leaders remain divided over how to solve it. Stronger countries like Germany have insisted on government spending cuts, but voters in weaker countries are in no mood for further fiscal pain. Unemployment in the 17 countries that use the euro currency is a record 11 percent.
And even fast-growing economies in the developing world appear to be slowing.
India reported Thursday that its economy grew just 5.3 percent in the January-March quarter, slowest in nine years. And manufacturing in China, the world's second-largest economy after the United States, barely grew in May.
The U.S. government uses a survey of mostly large businesses and government agencies to determine how many jobs are added or lost each month. That is the survey that produced the 69,000 number.
It uses a separate survey of American households to calculate the unemployment rate. That survey picks up hiring by companies of all sizes, including small businesses, companies being started, farm workers and the self-employed.
The household survey found that 422,000 more Americans had jobs in May than in April. But the work force grew by 642,000 as more Americans who hadn't been looking for work started to look. That is why the unemployment rate inched up from 8.1 percent to 8.2 percent.
The economy lost 28,000 construction jobs, the worst for that industry in two years, and 13,000 government jobs. A category of employers called "leisure and hospitality" cut almost 9,000, mostly at amusement parks, museums and casinos.
And March and April, already disappointing months for job creation, were not as strong as first thought. The government revised the job-growth totals lower by 11,000 to 143,000 for March and by 38,000 to 77,000 for April.
From December through February, the economy added an average 252,000 jobs per month.
"There is virtually nothing positive in this report if you are trying to build a case for an economy that is supposed to be in recovery mode and gaining momentum," said Tom Porcelli, chief U.S. economist for RBC Capital Markets.
Investors made their disappointment clear.
The Dow, the S&P 500 and the Nasdaq composite index all fell by more than 2 percent. The S&P, which was up 12 percent for the year through March, was left with a slender gain of 1.6 percent.
Homebuilder stocks fell the most, apparently because the dismal picture for the U.S. economy outweighed a report that construction spending rose for a second month in April.
The price of gold, which some investors have often bought over the past three years for safety in turbulent economic times, climbed $58 an ounce, to $1,622, the highest since early May.
Anticipating weaker world demand, investors drove down the price of oil by $3.49 a barrel to $83.04, the lowest since October and 24 percent below its peak of $109.77 in February.
That will at least provide help for American drivers: The price of gasoline, which peaked at an average of $3.94 a gallon in April, has fallen to $3.61. It is below $3 in parts of South Carolina, and the national average should be below $3.50 soon.
Business owners cited a range of reasons for pulling back on hiring in May. Some said sales had been hurt by the weak economy in Europe. Others, like a California road construction company, said slower government spending was costing them.
But in interviews on Friday, most expressed general uncertainty about the U.S. economy.
Alan Gaynor's architectural design firm in New York, Alan Gaynor & Co., isn't hiring because his clients, real estate developers, are uneasy about starting projects.
"It's a wait-and-see attitude they have. Everyone's a little nervous. The economy's growing a lot slower than anyone would have liked," said Gaynor, who has 15 employees, the same as a year ago.
Still other businesses cited tight credit, a vestige of the 2008 financial crisis.
Robert Stewart Inc., a 93-year-old New Jersey company that makes neckties, wants to add five or six workers to its staff of 18, and business is up, said Steven Wishnew, the company's operations director.
But the company can't get the $50,000 to $100,000 in credit that would "kick-start our engine," he said, and sellers that used to give them 90 days to pay now demand payment in advance.
The bank wants the company's owners to put up their homes as collateral for a loan or line of credit, he said.
"You have to be insane to do that," Wishnew said. "Who knows where this economy is going?"
AP Writers Martin Crutsinger, Christopher S. Rugaber, Liz Sidoti, Darlene Superville and Daniel Wagner in Washington and Jonathan Fahey and Joyce M. Rosenberg in New York contributed to this story.
(This version CORRECTS that Republicans and Obama disagree about whether to extend tax cuts for all or just wealthiest Americans, not that Republicans have no incentive to extend the cuts. )
From Chad Stone, chief economist at the Center on Budget and Policy Priorities:
The share of the population with a job, which plummeted in the recession from 62.7 percent in December 2007 to levels last seen in the mid-1980s and has been below 60 percent since early 2009, edged up to 58.6 percent in May.
|@ altmandaniel : Need stimulus aimed at long-term growth: infrastructure, research, education. New New Deal. New GI Bill. New Sputnik Moment @justinwolfers|
|@ noamscheiber : My take on jobs: If you understand Team Obama's theory of recovery, you see how things may be about to get a lot worse: http://t.co/NVRqwWQd|
|@ justinwolfers : Even excluding the Great Recession, average jobs growth under Dubya was only 66k. So if +69k is a recession, we've been in one for a decade.|
|@ coopnytimes : Why are local governments still shedding jobs? See this Pew report on falling property taxes and state aid: http://t.co/FchzGAj8|
|@ umairh : At this point, I'm pretty sure I could take the decade off and start tweeting exactly where I left off. Hey, is that a bar?|
|@ justinwolfers : There are 3 huge risks that could cause a recession: 1. Fiscal cliff; 2. BRICs; 3. Europe. But no way is the US in recession now.|
|@ justinwolfers : For perspective, compare this month's job growth (+69k) with average under George W. Bush (+11k).|
To spell this out: high corporate profits and low levels of job growth are two sides of the same coin. If things were working properly right now, companies would take their excess revenues and use them to hire more people. Instead, they’re basically just letting those excess revenues sit on their balance sheets as cash because they’re scared to invest in themselves. It’s frankly pathetic.
The solution to this problem is nothing complex — the arbitrage is sitting there in the first chart, plain for all to see. The government can borrow at 1.45%: it should do so, in vast quantities, and invest that money back into the economy itself. Take a few hundred billion dollars and use it to fix our broken infrastructure, to re-hire all those laid-off teachers and firefighters, to provide some kind of safety net for the millions of Americans who have been out of work for more than a year.
Stephen Bronars, senior economist at Welch Consulting, writes the following in a sobering blog post:
According to the latest figures from the Bureau of Labor Statistics, more and more young adults are taking part-time rather than full-time jobs. While the number of young adults age 20-24 has increased by 6.78% over the past four years, full-time employment has plunged by 17.1%. In contrast, part-time employment for young adults has increased by 37.2% over the past four years. Put somewhat differently, in May of 2008 71.7% of employed young adults had full-time jobs. In just four years the fraction of employed young adults with full-time jobs is 60.4%.
He speculates this may be partly due to students delaying their graduation because of the weak job market.
|@ fivethirtyeight : This jobs report is no big deal. Every economy has a few bad decades.|
AFL-CIO President Richard Trumka, the head of the largest U.S. labor federation, called Friday's jobs report "alarming and unacceptable," and he faulted GOP lawmakers in Congress for the tepid job growth. From his statement:
Most frustrating is the fact that it is not the means for recovery that lack, but rather the will. For purely political and cynical reasons, Republicans in Congress have blocked President Obama’s efforts to maintain momentum for growth, whether it’s the American Jobs Act or routine highway infrastructure investments. Moreover, under the leadership of Mitt Romney, Paul Ryan and John Boehner, Republicans are also looking to cut back on policies that provide relief for the millions of working families worrying about how to pay the bills and how to make ends meet.
From Derek Thompson, senior editor at The Atlantic:
|@ DKThomp : Big picture #3: Since Dec 2009 public payrolls have fallen 510,000, offsetting about 1 out of every 8 new jobs added in the private sector|
Since Thompson's analysis does not account for the fiscal multiplier, government job cuts probably have hurt private job growth even more than he is saying. That is because unemployed schoolteachers and firemen have less money to spend, which translates into less income for private-sector workers, who then spend less. Austerity leads to a self-reinforcing cycle of unemployment, lower income, less consumer spending, and more unemployment.
|@ AnnieLowrey : Maybe the farm payrolls report is really good this month?|
|@ DKThomp : Big picture 2: Since December 2009 manufacturing has accounted for 12% of private sector job gains.|
|@ DKThomp : Big picture: The participation rate is slightly higher than it was at the start of the year, and the unemployment rate is slightly lower.|
|@ JHWeissmann : @BCAppelbaum @justinwolfers At least you got the fun of a bubble. Class of '08, not so much.|
|@ ryanavent : I want a move that implies more Fed action until output gap is much smaller.|
From Barclays Capital economist Peter Newland:
The details were broadly encouraging. First, the decline in the headline is no surprise, given the strong pace of manufacturing output growth in Q1, and remains consistent with continued recovery in activity. Second, that the drop in May was driven largely by the production component (down to 55.6 from 61.0) suggests to us that producers are working to reduce inventory levels rather than responding to signs of weaker demand (the inventory index fell to 46.0 from 48.5, although this is a measure of raw materials rather than work in progress). Indeed, the new orders index bucked the trend by increasing to 60.1 from 58.2, a thirteen-month high (Figure 1). The employment index also remained at fairly robust levels, down slightly, to 56.9 from 57.3. All in all, given the backdrop of sharply weaker PMI indices in Europe and China and coming on the heels of a very soft payrolls number, this report offers signs that the recovery has not been entirely derailed.
U.S. Labor Secretary Hilda Solis tried to put a rosy sheen on the disappointing jobs numbers in a statement issued Friday, glossing over May's anemic growth in favor of a longer-term view:
Our labor market continues to recover. We continue to add jobs to an economy that was once bleeding 800,000 a month under the previous administration. Over the last 27 months, we have added more than 4 million private sector jobs. And for each of the past five months, we have created an average of 169,000 jobs. Additionally, the number of people who have been unemployed for six months or more has decreased by 800,000 over the last year.
Across the board, industry sectors are growing. This month we saw strong growth in health care, transportation and warehousing, and wholesale trade. Also, growth in manufacturing continues to trend up, with nearly 500,000 jobs added over the last 28 months — the strongest growth in manufacturing since April 1995.
There's no gilding the rotting dead rodent that is the U.S. job numbers report. But as any teenager knows, rationalization is a key coping strategy. Got bad grades? Tell mom how lucky she is that she didn't give birth to Tommy down the block, who failed every subject.
Spain, in the job news context, is our Tommy. Pushed along by a banking crisis sparked by a massive real estate bubble (sound familiar?) the country is in absolute free-fall. Unemployment recently hit a mind-blowing 24.3 percent, according to Bloomberg News, far and above the European Union average of 11 percent. More than 5 million Spaniards are unemployed.
Feel any better?
|@ BetseyStevenson : We lost 28K construction jobs in May. Imagine if we were actually doing all the infrastructure investment this country needs.|
|@ McDonaldsCorp : @arthurdelaneyhp While we can’t eliminate unemployment worldwide, we do what we can to create jobs in the communities we do business.|
|@ McDonaldsCorp : @arthurdelaneyhp Cheer up Arthur, eat some fries & smile! By the way, did you know that 1.8M people worldwide work for brand McDonald’s?|
Arthur's original tweet: "people w/ jobs :( RT @McDonaldsCorp: It's Friday!!!!! Who else is looking forward to the weekend?"
Here's some tips for older workers, both employed and unemployed, from HuffPost 50:
--Laura Rowley and Bonnie Kavoussi
|@ BCAppelbaum : For the record, I'm not sad because of one month's jobs report. I'm sad because the economy has sucked for my entire adult life.|
From Barclays Capital economist Cooper Howes:
Construction spending now stands 6.8% higher than in April 2011.... In all, this report shows a pattern similar to the one seen in March and remains consistent with our view that residential investment will provide a positive contribution to GDP growth in 2012.
And from Ian Shepherdson, chief U.S. economist at High Frequency Economics:
April construction spending rose 0.3%, a tenth less than expected, but note that the level of spending in March was revised up by a hefty 1.2%, so overall this report is much better than it looks or was expected. The details show housing continuing to lead the way, with new-build up 2.1%, getting the second quarter off to a very strong start. Even if May and June are flat - they won't be - the quarter will be up at an annualized 18% rate.... Construction will add to Q2 GDP growth.
Michelle Meyer, senior U.S. economist at Bank of America, writes that labor force growth this month will not last:
The labor force jumped 642,000 after two months of sharp declines; this may be partly explained by students entering the labor force. Looking past the monthly noise, we believe the labor force participation rate will head lower as long as job growth remains sluggish.
From a research note by Michelle Meyer, senior U.S. economist at Bank of America:
This is the recovery of fits and starts, and we believe we are entering a slow patch in the second half of the year. This report is not sufficient to prompt Fed action in June, but it makes August QE increasingly likely.
From Paul Ashworth, chief U.S. economist at Capital Economics:
The modest decline in the US ISM manufacturing index, to 53.5 in May from 54.8 the month before, was probably a lot better than most people had feared after the weak payrolls data and the sharp declines in the manufacturing PMIs for Europe and China. The key new orders index even strengthened to a 13-month high of 60.1, from 58.2. The decline in the headline index was driven by a drop back in the production index to 55.6, from 61.0, and a slide in the employment index to 56.9, from 57.3. Nevertheless, all these indices remained well above the 50 mark that is supposed to separate expansion from contraction.... The upshot is that while the employment data have taken a turn for the worse, the output and expenditure data appear to be holding up much better, at least for now.