New jobs down, unemployment up: Is the economy hitting a pothole or a ditch?
Unemployment increased to 9.1 percent in May, and only 54,000 new jobs were created. Economists point to lingering impacts of the tsunami plus rising food and gas prices.
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In the weeks ahead, Mr. Kleintop is expecting a fairly “somber” tone, as corporations begin to scale down their earnings expectations. This could result in stocks losing more of their value, he says.
“We’re not in a bear market,” he says indicating a period when the market falls 20 percent or more. “But, we are hunkering down a bit.”
“The Japanese tsunami has hit the US with a delay,” says Mr. Meckstroth. “It feeds down through the supply chain.”
For example, in April, many Japanese auto manufacturers with production facilities in the US ran out of those parts that are made in Japan. As they slowed production, it affected steel producers and other companies that make parts for the industry.
Roy Krause, CEO of SFN Group, which supplies temp workers, says his company had a slowdown of business in the Midwest related to the auto industry, but is quick to add that he doesn’t foresee a long-term event.
“It could last 30, 60, maybe 90 days,” he says. “It’s a slowing of growth, but not a retrenching.”
In fact, his industry is still growing at about a 9 percent year over year rate, Mr. Krause says. While this is down from about 16 percent last year, “we’re still seeing growth,” he notes.
The best job areas are white-collar related, he says, where demand is still at a double-digit pace. “There is a disconnect between skilled workers and unskilled workers, which is why it is taking so long to bring down the unemployment rate.”
This spring, US consumers have had to cope with rising food and gasoline prices. “When prices are up, people buy less of it,” says Meckstroth. “We saw a loss of jobs in food manufacturing and employment in the refining and petrochemical industries.”
Meckstroth says business may have been overly optimistic early in the year. Manufacturing was growing at 7 percent while the general economy was rising at a 1.8 percent annual rate. “You can’t maintain that premium for very long,” he says. “We were expecting it to slow to a 4 percent annual rate.”
The slow rise in new jobs makes it easier for Federal Reserve Board Chairman Ben Bernanke to keep interest rates low, says Mr. Naroff. “When you get a report like this, who will stand up and say we have to tighten policy?” he says, “It plays into his strategy. His caution on raising rates is paying off.”