Economic outlook hinges on unemployment report
By Neil Irwin,
After a string of disappointing reports on the economy in recent weeks, Friday will be an acid test on whether the recovery can endure, as the Labor Department releases its May unemployment report.
One of the few bright spots in the economic picture in the past three months has been solid and steady job creation by the private sector. Private employers added an average of more than 250,000 positions to their payrolls during that time.
Economists surveyed by Bloomberg expect employers to have added 170,000 jobs in May, compared with 244,000 in April. Forecasters also expect the unemployment rate to tick down, to 8.9 percent from 9 percent in April.
But some analysts are now predicting even slower job creation. If the May jobs numbers disappoint — particularly if job creation skids to fewer than 100,000 positions added — it would deflate remaining optimism that the economy is in a solid and self-sustaining expansion.
“The employment numbers over the last three months, we all looked at those and cheered and hoped that they were the break-out data that we’ve been looking for,” said Mike Schenk, senior economist at the Credit Union National Association. “But I think what we get Friday will make it fairly clear that the job market remains in pretty rocky territory and that this recovery both from jobs perspective and broader perspective is pretty lackluster.”
There have already been a slew of worrisome signs, including some new ones this week.
The Labor Department said Thursday that 422,000 people filed new claims for unemployment insurance benefits last week. While that was a notch down from the previous week’s 428,000, jobless claims have been above 400,000 for eight straight weeks, reversing a pattern of steady decline in the past few months.
Job creation slowed sharply last month at private businesses, according to ADP, the payroll processing company. Firms added about 38,000 positions, ADP reported Wednesday, compared with 179,000 jobs added in April.
The grim news reaches beyond the job market. A separate report from major chain retailers Thursday said that sales at stores that have been open more than a year rose 5.4 percent in the 12 months ending in May. But that was a drop-off from an 8.5 percent pace of increase in the year ending in April.
Factory orders fell 1.2 percent in April, the Commerce Department said, worse than the 1 percent decline analysts had forecast and a reversal of a 3 percent gain in March. The report follows Wednesday’s news that manufacturing had dropped in May to its lowest level since September 2009, according to the Institute for Supply Management’s survey of purchasing managers.
On Thursday, stocks dropped for the second day in a row, after the reports on jobless claims and retail sales. The Standard & Poor’s 500 index was down 0.1 percent for the day.
Over the course of 2011, many key areas of the economy have disappointed.
Consumer spending has been reined in by higher gasoline prices. The pace of business investment has weakened from last year, and the housing sector has been a disaster, declining steadily.
But against that troubling backdrop, there have been signs of strength.
Before the Wednesday ISM report, the manufacturing sector was expanding steadily. Despite its sharp downturns in the past two days, the stock market is above its mid-April levels — contributing to wealth and business investment.
And private-sector job creation has been inching up. Friday’s data will be the test of whether the nation can count on that.