WASHINGTON – U.S. employers created only 69,000 jobs in May, the fewest in a year, and the unemployment rate ticked up, boding ill for President Barack Obama’s re-election chances.
The dismal jobs data will fan fears that the economy is sputtering. And it could lead the Federal Reserve to take further steps to help the economy.
Republicans seeking the White House have accused Obama of failing to steer the economy out of a deep recession, setting up the health of the nation’s economy as a pivotal issue in the 2012 election.
Mitt Romney, Obama’s Republican challenger, said the jobs report is “devastating news” for workers and their families. In a statement, he called the report “dismal” and a harsh indictment of Obama’s policies.
The Labor Department also said Friday that the economy created far fewer jobs in the previous two months than first thought. It revised those figures down to show 49,000 fewer jobs created. The unemployment rate rose to 8.2 per cent from 8.1 per cent in April, the first increase in 11 months.
The Dow Jones industrial average fell 200 points in morning trading.
The yield on the benchmark on the 10-year Treasury note plunged to 1.46 per cent, the lowest on record. It suggested that investors are flocking to the safety of U.S. government bonds.
The price of gold, which was trading at about $1,550 an ounce before the report, shot up $30. Investors have seen gold as a safe place to put their money during turbulent economic times.
Josh Feinman, global chief economist with DB Advisors, said Friday’s report raises the likelihood that the Federal Reserve will do more — perhaps start another round of bond purchases to further lower long-term interest rates.
Still, he noted that the rate on 10-year Treasury notes is already at a record low 1.46 per cent.
“How much lower can long-term rates go?” Feinman said.
The economy is averaging just 73,000 jobs a month over the past two months — roughly a third of 226,000 jobs created per month in the January-March quarter.
Slower growth in the United States comes at a perilous time for the global economy.
Europe’s financial crisis is flaring again. And nearly half the 17 countries in the eurozone are in recession. China, the world’s second-largest economy, is also showing signs of weakness. Its manufacturing sector is decelerating, a reflection of lacklustre demand for its products from Europe, the U.S. and the rest of the world.
But while China is acting to increase growth and European countries are weighing similar steps, U.S. leaders have been focused more on reducing government debt.
Romney has made the economy the central theme of his campaign. No president since the Great Depression has sought re-election with unemployment as high as 8.2 per cent, and past incumbents have lost when the unemployment rate was on the rise.
Other Republicans wasted little time seizing on the bleak report.
“Today’s extremely troubling jobs report proves yet again that President Obama’s policies simply are not working and that he has failed to live up to the promise of his presidency,” said Republican National Committee Chairman Reince Priebus.
“It is important not to read too much into any one monthly report,” Alan Krueger, chairman of Obama’s Council of Economic Advisers, said in a statement.
But Krueger acknowledged: “There is much more work that remains to be done to repair the damage caused by the financial crisis and deep recession that began at the end of 2007.”
There are signs business confidence is waning. Companies have cut their spending on computers and machinery for two straight months, goods that signal investment plans. And some regional surveys suggest the factory activity is expanding at a slower pace.
Consumers are also more downbeat about the economy, according to a May survey from the Conference Board. That could lead more Americans to cut back on spending, which drives 70 per cent of economic growth.
Construction firms cut 28,000 jobs, the steepest drop in two years. Professional services, government, hotels, restaurants and other leisure industries also lost jobs.
Not all industries cut jobs. Manufacturers added 12,000 jobs. Transportation and warehousing created nearly 36,000. Education and health care added 46,000.
Many Americans picked a bad time to jump back into the labour force. The U.S. work force — those working and looking for work — expanded by 642,000 in May. It was the biggest increase since November 2007.
Yet job opportunities were scarce. The number of unemployed Americans rose by 220,000, the sharpest rise since November 2010. The increase drove the number of unemployed to 12.7 million.
The average work week was shortened to 34.4 hours. It suggested that companies are seeing less consumer demand. The average hourly wage ticked up two cents, to $23.41. It has increased only 1.7 per cent in the past year, trailing the rate of inflation.
Businesses are facing a growing threat from Europe’s financial crisis, which has worsened in recent weeks. The crisis is driving up borrowing costs for Spain and Italy and spreading to the banking system. Greece could be forced to exit the euro, which could push the region into a sharp recession. That could limit U.S. growth.
“Business sentiment has turned sours,” said Ellen Zentner, an economist at Nomura Securities. “Companies are concerned about contagion from Europe.”
Zentner said the warm winter accelerated some hiring that normally would have taken place in the spring. The construction industry, one of the most weather-sensitive industries, added jobs in December and January but cut back sharply in April and May.