US employment growth registers sharp slowdown in May

Jobs fair in Los Angeles Despite the slowdown, it was the eighth consecutive month of positive jobs growth in the US

US employment growth slowed sharply in May, with only 54,000 net new jobs added during the month.

Markets had expected a rise of 150,000. It follows a downwardly revised but still rapid 232,000 increase in April.

Despite the slowdown, it was the eighth month in a row of positive employment growth, according to data from the US Labor Department.

President Obama acknowledged that even though the economy was growing, the US still faced some tough times.

"There's nobody here who doesn't know someone who's looking for work and hasn't found something yet," he said, speaking on a visit to a Chrysler plant in Toledo, Ohio, where he highlighted the turnaround in the car industry after government help.

But he made no specific reference to the latest jobs data.

He added: "There are always going to be bumps on the road to recovery," also citing high fuel prices, the economic problems that followed the earthquake and tsunami in Japan, and instability in the Middle East.

US unemployment rate
Local government cuts

Analysis

Foul weather, high energy prices and the earthquake in Japan are being blamed for the bad news on jobs. But it may be the broader picture that is most troubling.

The manufacturing surge has failed to lead to significant new hiring and a property market that is still on its knees is dragging down growth.

Unemployment had fallen steadily from December To April, but since then it has climbed. The country is not generating nearly enough jobs to soak up new entrants into the labour market, let alone re-engage the millions that lost their jobs in the recent severe recession.

After two big economic stimuli and significant monetary intervention, the government's economic armoury is looking pretty bare. That leaves President Obama in a tough place. Jobs - or the lack of them - have overshadowed his time in office. Few get re-elected with jobs numbers like these.

The unemployment rate also rose unexpectedly to 9.1%, from 9% a month earlier.

The number of unemployed remained largely unchanged at 13.9 million, but the number out of work for more than 26 weeks rose by 361,000 to 6.2 million.

Local governments reduced their headcount for the the 22nd month in a row, by an unusually large 28,000.

The private sector created 83,000 new jobs in the month, but this is less than is needed to soak up new people coming into the labour market.

"Job gains continued in professional and business services, healthcare and mining," said the Bureau of Labor Statistics.

Total employment in the US still remains nearly 5% below the pre-recession peak it registered nearly three-and-a-half years ago, in what has been the worst jobs recession since World War II.

'Dramatic turnaround'

Jobs are a key political issue in the US and White House officials sought to play down the significance of this month's figures.

"Every time we look at those numbers we don't get too excited by what those numbers say, or we don't get too disappointed. What we're looking at is the overall trend," said White House spokesman Josh Earnest.

"If you look at where we've come from, the turnaround is pretty dramatic."

Mitt Romney, who this week began his fight to become the Republican candidate in next year's presidential election, said the jobs data showed the economy was "going backwards" and President Obama's economic policies were not working.

"Three years later, we have higher gasoline prices, higher food prices, more people are feeling the squeeze," Mr Romney said.

"The truth is, Barack Obama has failed America."

Recession fears

The figures echo similarly disappointing US economic data released in the past week, including apparent slowdowns in the manufacturing sector and in consumer spending.

It all points to a marked slowdown in the US economy during the second quarter of the year, according to Nigel Gault, chief US economist at IHS Global Insight.

"[The jobs report] is weak across the board," he said. "We can't point to any one special factor and say that makes this an aberration."

However, he remains upbeat about the outlook for the second half of the year: "We have seen some easing in commodity prices, gasoline prices are starting to come down, and the bad effects on vehicle production of the Japanese problems will start to unwind."

But the figures may resurrect fears of a possible slide back into recession, analysts warn.

And that prospect will fuel speculation that the US Federal Reserve may embark on a third round of "quantitative easing" - purchasing government bonds to pump more cash into the financial system - later this year.

"Arguing about the merits of whether QE3 would be a good idea, is irresponsible right now," said Tod Schoenberger, managing director at Landcolt Trading in Delaware.

"It would be proactive for the [Federal Reserve's monetary policy committee] to discuss and develop a strategy for implementing QE3, because it's painfully clear the United States is headed for a very messy second half of 2011."

Stock markets fell sharply following the data release, with the FTSE 100 index falling 0.8% immediately following the announcement.

The Dow Jones dropped 1.2% at the start of trading, before recovering during morning trading in New York.

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