New York Times, June 7, 2008: Unemployment Rate Hits 5.5% as 49,000 Jobs Lost
By PETER S. GOODMAN and MICHAEL M. GRYNBAUM
The unemployment rate surged to 5.5 percent in May from 5 percent, the largest monthly spike in more than two decades, as the economy shed 49,000 jobs for a fifth month of decline, the Labor Department reported on Friday.
Economists construed the weak monthly jobs report as an indication of the pain assailing tens of millions of Americans amid an economic downturn that most experts assume is a recession.
The labor market is continuing to deteriorate, eroding the size of paychecks, just as gasoline and food prices surge, and as the declining value of real estate erodes the wealth and credit of many households.
“It۪s unambiguously ugly,” said Robert Barbera, chief economist at the research and trading firm ITG. “The average American already knows that gas prices are up a ton and its really hard to find a job. Sally and Sam on Main Street are already well aware of this, and that۪s why sentiment surveys are lower than they were in each of the last two recessions.”
On Wall Street, stock markets were down sharply in morning trading as investors saw in the weak job numbers signs that the overall economy could remain mired in trouble for some time.
The spike in the jobless rate also ratcheted up the policy debate in Washington, where the White House has pledged to veto a supplementary Iraq war financing bill that includes an expansion of unemployment benefits. The White House has opposed the bill for imposing deadlines on the withdrawal of troops.
Among the 8.55 million people who were unemployed in May, 1.55 million had been unemployed for 27 weeks or longer. Federal unemployment benefits currently expire after 26 weeks. The bill approved by the Senate and facing a vote in the House would add another 13 weeks of cash assistance.
“It would show a new level of callousness by Congress, a new level of disconnect between Washington and the rest of the country, not to pass an extension now,” said Andrew Stettner, executive director of the National Employment Law Project, a national advocacy group for the unemployed.
The White House argues that jobless benefits have never been extended with the unemployment rate this low, a position that White House spokesman Tony Fratto said remained in place even after Friday۪s report.
The leap in the unemployment rate also appeared to cool talk that the Federal Reserve might soon begin inching up interest rates in an effort to choke off rising prices for gasoline, food and other goods, and to support the weak dollar. The Fed policy board meets again at the end of the month.
“I don۪t think we۪ll be seeing Ben Bernanke defending the dollar anytime soon,” said Michael T. Darda, chief economist at the research and trading firm MKM Partners, who has worried that the Fed has stoked inflation by lowering interest rates too aggressively. “The Fed more than anything else puts emphasis on the labor market indicators. This will make it very difficult for the Fed to take back the easing in an expeditious fashion.”
For six months, the Fed has been steadily lowering interest rates, which tends to spur borrowing and investment, in an effort to bolster the economy. As inflation fears have grown, so have calls in some quarters that the Fed alter its course. That conversation has been amplified by talk on Wall Street that the economy appeared to be stabilizing, and banks were past the worst of their mortgage-related woes.
But Friday۪s report injected a substantial note of gloom into that view.
“We simply haven۪t had five months of net job losses without being in a recession,” said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington.
The details of the report fleshed out how economic troubles that began with the fall of real estate prices and then spread to the construction industry have continued to ripple out to other areas of the economy. Many homeowners who are no longer able to borrow against the values of their houses have been cutting their spending, shrinking sales at shopping malls, grocery stores and home improvement outlets. That has prompted to businesses to cut payrolls, taking more purchasing power out of the economy.
Construction again led the way down in May, shedding 34,000 more jobs, according to the report. Profession and business services which includes lawyers, accounts, architects and management consultants declined by 39,000.
Manufacturing lost 26,000 jobs as the sector continued its steady decline. Retail payrolls shrunk by 27,000 jobs, and transportation and warehousing by 10,500.
Health care remained a rare bright spot, adding 33,900 jobs in May, while restaurants and bars added 11,400 jobs
The jobs picture has turned particularly mean for more vulnerable segments of the population, with the unemployment rate among African-Americans leaping to 9.7 percent in May from 8.6 percent in April .
Over the same period, joblessness among those aged 16 to 19 climbed to 18.7 percent from 15.4 percent, underscoring why many economists predict this will be the weakest summer job market for teenagers in at least 60 years.
The White House and some economists questioned the validity of the spike in unemployment, noting that most of results from a surge in people entering the labor force. Some suggested that this meant that the Labor Department may have miscalculated its seasonal adjustments for graduating college students entering the market, inflating the numbers of those seeking work.
“I think this move is exaggerated,” Mr. Darda said, who noted that new unemployment claims, while recently crossing above 370,000 a week, are still not consistent with such a dramatic surge in joblessness. “This is strange.”
Even at 5.5 percent, the unemployment rate remains relatively low by historical measures, the White House noted.
But others said the report appeared to catch up with other indicators, like several years of weak hiring, that have made a search for a job far more difficult than the simple unemployment figure reflects.
The unemployment rate does not count people who have given up looking for work. The percentage of working age-Americans employed dropped to 62.6 percent in May, down from 63 percent a year earlier. And years of weak hiring have made some companies so lean that they have few people left to cut.
“Companies didn۪t have so many people on the payrolls to shrink in the first place,” Ed McKelvey, an economist at Goldman Sachs, said.
In recent months, many companies have been cutting the working hours of those on their payrolls and generally avoiding layoffs, while hoping that the economy would improve. That trend held up in May, as those working part-time because they could not find full-time work or because of slack business nudged up from 5.22 million to 5.23 million.
But that was a much smaller increase than the previous month. The slowing of that trend, coupled with a net loss of jobs, was taken by some economists that businesses are running out of hours they can cut: Now, they are faced with the possibility of layoffs.
“This is what happens when an economy grows solidly below trend for six months,” said Mr. Bernstein. “Employers cut back first on hours, then on jobs.”
Peter S. Goodman contributed reporting.