(May jobs report updated with ISM services data and analyst commentary)
With hiring slowing dramatically in May, the unemployment rate ticked up by a tenth of a point to 9.1%, higher than the 9% economists were expecting. Discouraged workers, who are not counted in the survey as unemployed because they have stopped looking for work, dropped to 822,000 in May from 989,000 in April. The data on discouraged workers isn't seasonally adjusted. That could be one explanation for the uptick in unemployment, as discouraged workers return to the work force. Meanwhile,
the employment-to-population ratio, which is a more reliable metric, remains unchanged at 58.4%, still lower than the 62.7% levels before the recession. In May, average hourly earnings for all employees on private nonfarm payrolls increased by 6 cents, or 0.3%, to $22.98. The average work week for all employees on private nonfarm payrolls remained at 34.4 hours in May. Economists reacting to the report said some of the factors behind the weakness of the report were temporary. "Overall, this is horrible, and if we thought it would continue for much more than another month or two we would be seriously worried," wrote Ian Shepherdson, U.S. economist at High Frequency Economics, in a note. "But we think it is largely a reaction -- an overreaction we would say -- to the rise in oil prices, and a very real hit to autos and tech from the Japan earthquake. But oil prices have now reversed more than half their gain since Feb, and consumers have not rolled over. The market reaction to these data is understandable, but that does not make it sustainable," said Shepherdson. O'Keefe at J.H. Cohn said the data suggested that the pace of the recovery had decelerated but there was no real downturn. "One important point that economists fail to emphasize is that the business cycle is not composed of neat compartments of expansion and contraction," he said. "When we look at past recoveries, it is not uncommon to see the pace of change accelerate or decelerate in different phases."
Still, the economist is less optimistic about his outlook for jobs in 2011. "I am certainly going to lower my estimate for jobs at the end of the year," said O'Keefe, who originally expected 2.75 million to 3 million jobs will be added in 2011. "The incremental nature of the recovery -- where we see jobs, incomes, consumer spending, retail sales, you name it not jump but improving marginally - augurs for slow gains in employment. I don't see a breakout number in the horizon," he said. The weak employment report is the latest sign that the economy is sputtering. Economists are cutting back GDP forecasts for the third quarter to close to the lower end of 2% from 3% previously. That has the market scaling back its expectations for a monetary tightening by the Federal Reserve anytime soon. "We will be re-evaluating our expectations of a Federal Reserve unwind," Robert Dye, economist at PNC Financial Services, wrote in a note. "Indications are now that the sequence of steps that the Federal Reserve must undertake to 're-normalize' policy will be delayed relative to our previous expectations which put the first round of Fed funds tightening at March 2012." -- Written by Shanthi Bharatwaj in New York >To contact the writer of this article, click here: Shanthi Bharatwaj. >To follow the writer on Twitter, go to http://twitter.com/shavenk. >To submit a news tip, send an email to: firstname.lastname@example.org. --Written by Shanthi Bharatwaj in New York >To contact the writer of this article, click here: Shanthi Bharatwaj. >To follow the writer on Twitter, go to http://twitter.com/shavenk. >To submit a news tip, send an email to: email@example.com.