Poor unemployment report points to troubled US economy

In a troubling sign of a weakening economy, the Department of Labor reported on Friday that the US added just 69,000 jobs in May, about half of what Wall Street had been expecting. At the same time, the unemployment rate edged higher to 8.2 percent, up from 8.1 percent in April.

The low jobs total was the third consecutive month of disappointing jobs numbers. Initially, economists believed that companies had over-hired during the warm winter and had slowed hiring in the spring. Now, they say the economic downturn in Europe may be having an effect here, as banks become more skittish about making loans. At the same time, another barometer of confidence – the stock market – fell 6 percent in May.

“It is unambiguous the US economy is slowing down,” says Richard DeKaser, deputy chief economist at the Parthenon Group, a consulting group in Boston. “The US economy’s prospects depend on how the European crisis is resolved or left unresolved.”

If the economy is slowing, the implications are widespread.

The Federal Reserve, which meets in mid-June, may announce it will try to reduce longer-term interest rates even more. The stock market – which dropped sharply on Friday morning – may have to digest the implications of slower economic growth on corporate earnings. And President Obama will face even harsher criticism from rival Republicans over his handling of the economy.

Almost as soon as the Bureau of Labor Statistics, part of the Department of Labor, released the data, Republicans were firing off press releases. Mr. Obama’s expected opponent, Mitt Romney, called the May report “devastating economic news.” In a statement, House Speaker John Boehner said, “The American people are still asking, ‘Where are the jobs?’ ”

The White House scrambled to put a more positive spin on the numbers. Alan Krueger, chairman of the president's Council of Economic Advisers, noted that the problems in the job market “were long in the making and will not be solved overnight…. We are still fighting back from the worst economic crisis since the Great Depression.”

In a briefing for reporters, US Treasury official Jan Eberly cautioned against looking at one month of data. She said the economic recovery had to be looked at against the backdrop of the financial crisis.

“Households are still deleveraging,” or paying down debt, she noted. In addition, she observed that gasoline prices were still elevated in April and May, which may have held down some consumer spending.

Independent economists acknowledge being somewhat baffled by the May jobs report. For example, the report indicated that the construction trades lost 18,000 jobs in the month.

“Have the cities and states stopped all construction projects?” asked Joel Naroff of Naroff Economic Advisers in Holland, Pa.

Ms. Eberly suggested it was related to the strong construction hiring in December and January, when the weather was warmer than normal. “There was some payback,” she said.

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