Job Creation, Wages Stagnant Last Month
Saturday, June 3, 2006
Job growth slowed and wages stalled in May, the Labor Department reported yesterday, providing more evidence that the economy is cooling.
Employers added 75,000 jobs to their payrolls last month, the weakest gain since October, when hiring nearly halted after a series of destructive hurricanes. The report followed others this week showing that the economy is losing some momentum because of rising interest rates and high energy prices. The housing market softened, auto sales dropped and manufacturing activity dipped last month.
"With evidence that the economy is slowing, the employment data suggest firms have grown more cautious of taking on additional workers," economists at PNC Financial Services Group Inc. wrote in an analysis for clients.
Nevertheless, unemployment fell from 4.7 percent in April to 4.6 percent in May, the lowest since May 2001, as more workers found jobs than began seeking them. Among Hispanics and Latinos, the jobless rate fell to 5 percent, the lowest level since the department began collecting the data in 1973.
Several analysts said the weak job and wage figures should ease inflation concerns, which might prompt the Federal Reserve to leave short-term interest rates unchanged at its next meeting June 28-29, after two years of steady increases.
Prospects for a "Fed pause" triggered a rally on the bond market, where long-term interest rates are set. The yield on the benchmark 10-year Treasury bond recorded its biggest drop in nearly 18 months, closing the day at 4.99 percent. That's a hair below the 5 percent overnight borrowing rate set by the Fed.
But some analysts warned that the Fed's next moves will hinge more on inflation figures to be released later this month.
"There are growing signs of a mild form of stagflation," said Ethan S. Harris, chief U.S. economist at Lehman Brothers Inc., referring to the combination of slow economic growth and high inflation that plagued the economy during the 1970s.
The Labor Department report showed no sign that the low unemployment rate is driving up wages. Average hourly wages for most workers rose just 1 cent, to $16.62, after a 10-cent gain in April. Moreover, because they worked slightly fewer hours last month, average weekly wages fell $1.32, to $561.76.
May was the third consecutive month of slowing job growth, Labor Department figures showed. The employers that trimmed jobs last month included automakers, retailers, airlines, hotels and temporary-help agencies.
The job losses, however, were outnumbered by small gains in other industries, including education, health care, and professional and business services, the department said.
Construction employment was flat in May, the department said, reinforcing other reports of a slowing housing market. Builders had been a big source of job growth during the housing boom, adding 300,000 jobs in each of the past two years.
The unemployment rate for white workers was unchanged last month at 4.1 percent. Black joblessness declined to 8.9 percent from 9.4 percent. The Hispanic and Latino rate fell to 5 percent from 5.4 percent.
"This news should reaffirm Hispanic Americans' sense of optimism about the economic and employment opportunities available to all Americans," U.S. Treasurer Anna Escobedo Cabral said in a written statement.
Before yesterday's report was released, futures markets reflected traders' expectations that the Fed would probably raise its benchmark short-term interest rate at the upcoming meeting to restrain inflation. After the release, traders estimated that chances of either another increase or no change in the rate were roughly even.
Many economists forecast that the economy will grow at a 2.5 percent annual rate in the third quarter -- less than half as fast as the 5.3 percent pace in the first three months of the year.
Fed officials want the economy to slow to dampen inflation pressures. Their challenge is to raise interest rates enough to keep inflation low without triggering a more serious economic slump. The difficulty is that interest rate increases take effect over many months, and inflation typically peaks sometime after the economy starts slowing -- making it hard to know when to stop.
"The slowdown is in place," wrote John E. Silvia, chief economist at Wachovia Economics Group. "How much and how rapid remains an issue."