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Hiring plunges in May as economy slows

Kevin G. Hall

WASHINGTON -- Employers added just 69,000 jobs in May, about half of what was expected, and the unemployment rate ticked up to 8.2 percent, the government said Friday in an awful jobs report that offered incontrovertible evidence that the U.S. economy is slowing sharply.

If the report from the Labor Department weren't bad enough, statisticians revised downward their earlier estimates of job growth for March and April, shaving those estimates by 11,000 and 38,000, respectively. It means job growth in April was not 115,000 but 77,000, and employers have added fewer than 100,000 jobs for two consecutive months.

That's important because economists think the economy needs to add 100,000 jobs per month to keep pace with new entrants into the workforce and 150,000 new jobs monthly to begin whittling away at the jobless rate.

"The jobs report was simply ugly. The decline in payroll jobs, the downward revisions to previous months, the increase in unemployment, the weak gain in wages, all point to a much softer economy this spring," said Mark Zandi, chief economist for forecaster Moody's Analytics. "Businesses are very skittish and have pulled back in response to the mounting European turmoil and weaker Chinese economy."

There was little to offer a sugar coating. Professional and business services, encompassing the white-collar jobs that lead to spending in the economy, fell by 1,000 in May. The hard hit construction sector shed another 28,000 jobs during the month, and leisure and hospitality fell by 9,000 jobs. That's significant since leisure and hospitality is a reflection of both businesses sending employees on travel and average Americans taking trips and vacations.

The one bright spot in the Friday report was that the manufacturing sector added another 12,000 jobs, bringing to 173,000 jobs over the past six months, much of it by automotive manufacturers. That's hardly robust growth, but it is growth in a sector that both political parties view as important.

Overall, the report points to a pullback in the U.S. economy and was consistent with what is happening globally.

Europe's widening debt crisis, and concerns that the euro zone might break apart, have weighed on the U.S. and global economy.

India, Brazil and China are all reporting significant slowdowns, and these emerging markets had been an engine that powered the world economy when the United States and Europe were under stress. These markets are also important for U.S. exports of airplanes, technology and farm products, and all are now importing less from the United States and elsewhere.

Many U.S. corporations are also heavily invested in and selling to these emerging markets, another way in which the global slowdown feeds back into the U.S. economy.

On top of the global slowdown, investors are also fretting about the so-called fiscal cliff coming at the end of the year, when a host of tax cuts are set to expire and automatic budget cuts are to go into effect. The combination could shave three percentages points of growth from the U.S. economy if the gridlocked Congress does not act by year's end.

"The bottom line is the economic recovery has hit another wall. Until Europe nails things down and policymakers address the fast-approaching fiscal cliff, the recovery will continue to struggle," said Zandi.

(EDITORS: BEGIN OPTIONAL TRIM)

Earlier, when the economy was adding 200,000 jobs or more per month, the Obama administration was quick to talk up the improving economy. On Friday, it took Republicans just a few minutes to pounce on the dismal report as a sign of failed leadership.

"Today's weak jobs report is devastating news for American workers and American families," Mitt Romney, the presumptive GOP presidential nominee, said in a statement shortly after the release of numbers.

Romney pointed to a spate of bad news this week, including falling consumer confidence, downward revisions to growth estimates for the first three months of 2012 and an uptick in first-time claims for unemployment.

It all stands "as a harsh indictment of the president's handling of the economy," Romney said. "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."

House Majority Leader Eric Cantor, R-Va., added in a statement that, "Too many Americans remain out of work and because of the president's policies, our nation's small businesses remain hesitant to hire and reluctant to grow."

Alan Krueger, head of the White House Council of Economic Advisers, looked past the bad monthly numbers and in a blog posting suggested external factors are weighing against growth and hiring.

"Just like last year at this time, our economy is facing serious headwinds, including the crisis in Europe and a spike in gas prices that hit American families' finances over the past months," Krueger noted.

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At least on one front, a headwind will be easing. Crude oil prices, not long ago at $116 a barrel on the New York Mercantile Exchange fell to $84 a barrel in Friday trading. That should feel like a tax cut to American motorists in coming weeks, which correspond with the peak driving season.

The Friday report was considerably weaker than the ADP National Employment Report, a closely followed gauge of private payrolls that was released on Thursday and found that 133,000 private-sector jobs had been created in May. That's considerably more than the 82,000 private-sector jobs reported by the Labor Department during the same month.

Some economists think that the ADP report better captures what's going on in small business, so the gap between the two reports could suggest that things aren't as bad for hiring as the government report suggests. This was supported by an increase of 422,000 people who reported new employment in the Labor Department's household survey released Friday.

Another variable open to interpretation is Friday's slight rise in the unemployment rate, from 8.1 percent in April to 8.2 percent in May. That may be a good sign since the labor force participation rate inched up by two-tenths of a percentage point, suggesting that frustrated workers are more optimistic and again are looking for work.

But much in the jobs report weighed against any positive narratives. The number of people reporting that they are working part-time but want full-time work edged up. Also up was the number of people who have been out of the labor force but have looked for a job sometime and in the past 12 months and would like to come back to work.

Those are often referred to as indicators of underemployment and give a clear picture of how much stress there still is in the labor market.

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MAY BY THE NUMBERS:

-- Professional and business services, down 1,000.

-- Manufacturing, up 12,000.

-- Leisure and hospitality down 9,000.

-- Health care, up 33,000

-- Construction, down 28,000.

-- Temporary help services, up 9,200.

-- Transportation and warehousing, up 35,600.

-- Retail, up 2,300.

-- Financial services, up 3,000.

-- Government jobs, down 13,000.

Source: Bureau of Labor Statistics

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(c)2012 the McClatchy Washington Bureau

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By KEVIN G. HALL
McClatchy Newspapers