Anemic Jobs Growth, Higher Unemployment Bodes Ill for Economy

VIDEO: Decrease in hiring raises concerns about another economic downturn.
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Unemployment ticked up in May to 9.1 percent as private employers added 54,000 jobs, far fewer than economists were expecting, capping a week of gloomy economic news.

The Bureau of Labor Statistics announced the May unemployment figures this morning, and few were pleased given the string of negative economic reports.

Economists had expected more than 150,000 new jobs, and there was consensus that unemployment would edge down, not up. Nonfarm payrolls increased 54,000 last month, with private employment rising 83,000 -- the least since June. Government payrolls fell by 29,000.

The bad news was hinted at Wednesday when payroll processor ADP Employer Services announced there were 38,000 private sector jobs added in May, much lower than anticipated.

Steven Leslie, lead financial services analyst at the Economist Intelligence Unit, said the number of jobs added might be a more accurate economic indicator than jobless claims, because many discouraged workers might have stopped looking for jobs.

Leslie had expected job creation to be above 200,000 again in May, with significant additions in the manufacturing sector.

While the addition of at least 200,000 jobs each month moving forward might support positive GDP growth, it will take another 29 months to replace the 7 million jobs lost since the start of the economic crisis, Leslie said.

"We do not see a double-dip recession or hyper-inflation in the future, but we do think U.S. economic growth prospects are pretty weak," he said.

U.S. manufacturing jobs might be one bright spot for the U.S. economy, however.

One reason is that exports from the manufacturing sector have been reasonably strong, Leslie said.

Despite flat U.S. car sales in May and a report from the Institute for Supply Management Wednesday that national manufacturing growth slowed in May, Leslie said he remains "bullish" about growth in emerging markets, such as China.

"That fuels a lot of demand of construction and items that sophisticated economies can provide, like machinery and aircraft," Leslie said.

But the poor state of the housing market creates a barrier not only for homeowners but to job growth. The closely watched Case-Shiller Home Price Index Tuesday showed a double-dip in housing prices. After rebounding in 2009 and 2010, home prices in major metro areas returned to mid-2002 levels in the first quarter.

"That means there is a loss of jobs in housing and associated industries like furniture and appliances, even transportation of housing-related products," Leslie said.

More people entered the work force in May. But most of the new entrants couldn't find work. That pushed the unemployment rate up from 9.0 percent in April. The number of unemployed rose to 13.9 million.

And the government revised the previous months' job totals to show 39,000 fewer jobs were created in March and April than first thought.

The weakness in hiring was widespread. Manufacturers cut 5,000 jobs, the first job loss in that sector in seven months. That included a drop of 3,400 jobs in the auto sector.

Car makers are cutting back on production because they are having a difficult time purchasing parts. Many auto parts are manufactured in Japan and the March 11 earthquake in that country has disrupted supply chains.

Retailers cut 8,500 positions, after adding 64,000 in April. Leisure and hospitality which includes restaurants and hotels, cut 6,000 jobs. That came after they added an average of 43,000 in the previous three months.

There were some bright spots in May. Professional and business services added 44,000 new positions, most of them in accounting, information technology services, and management.

Still, the economy needs to generate at least 100,000 jobs each month just to keep up with population growth and prevent the unemployment rate from rising. And economists say the gains need to be at least double that total to drive down the rate.

The Associated Press contributed to this report.

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