WASHINGTON — The U.S. economy suddenly looks a lot weaker.
Only 69,000 jobs were added in May, the fewest in a year, and the unemployment rate rose from 8.1 percent to 8.2 percent.
The dismal jobs data will heighten fears that the economy is sputtering. It also puts President Barack Obama on the defensive five months before his re-election bid.
The Labor Department also said Friday that the economy added far fewer jobs in the previous two months than first thought — 11,000 fewer in March and 38,000 fewer in April. And the increase in unemployment was the first in 11 months.
Job creation is the fuel for the nation’s economic growth. When more people have jobs, more consumers have money to spend — and consumer spending drives about 70 of the economy.
Here’s what The Associated Press’ reporters are finding:
Democrats and Republicans talk a lot about job creation. But a sharply divided Congress could end up being a job killer. Unless lawmakers intervene by the end of the year, income tax cuts will expire and $100 billion in spending cuts will kick in.
The Congressional Budget Office estimates that would cause the economy to shrink in the first half of 2013. That would meet the traditional definition of a recession: when the economy shrinks for two consecutive quarters.
The conventional wisdom is that at the last minute, lawmakers will prevent the country from falling off the so-called fiscal cliff. But until they do, economists say many businesses will remain reluctant to hire.
The hiring slowdown isn’t likely a harbinger of another recession. But Friday’s jobs report was so bleak that it at least injected the topic into conversation.
Either of two events would make a recession more likely, said Brian Bethune, an economics professor at Gordon College in Massachusetts: If the 17 nations that use the euro were to end their currency alliance. Or if Congress failed to reach a compromise to extend income tax cuts set to expire at year’s end and avoid cuts to defense and domestic programs.
The economy remains stronger than it was in August, when a downgrade of the United States’ long-term credit led some analysts to warn that another recession could occur, said Mark Vitner, an economist at Wells Fargo Securities.
“The odds of recession today are considerably less than they were last August,” Vitner said. “More states are seeing improvement, and more industries are recovering that at any time since the recession ended.”
A PENNY HERE, A PENNY THERE
A slowdown in hiring hurts even those who do have jobs because employers have less incentive to give raises.
That trend continued in May. The average hourly wage rose just two pennies, to $23.41.
Pay has risen 1.7 percent in the past year. That’s the smaller 12-month gain since December 2010. It’s even slower than the rate of inflation, which means many people can afford less on what they are earning.
JOBS LOST TO AUTOMATION
“We’re not hiring, and we’re not replacing” workers who leave, said Joe Glenn, who runs Glenn Metalcraft in Princeton, Minn.
Not because business isn’t good. Sales jumped 40 percent last year. But over the past five years, his shop has kept employment flat at about 35 workers. Instead, he’s added more computer-controlled metalworking machines and robots to load the raw material into them.
His shop is so busy that he runs an overnight shift to keep the machines running, making parts for trailers that haul sand to oil fields in North Dakota and parts for farm and construction equipment. But he needs fewer workers to make those parts.
“I think we’re producing as much as we were with a lot less manpower, and I don’t foresee that those jobs are going to come back,” Glenn said.
PAIN ON WALL STREET
The jobs report spread gloom among investors. The Dow Jones industrial average shed about 275 points Friday, its worst fall since November. It left the Dow down 0.8 percent for the year.
Economic data from Europe and Asia also came in weak, and traders sold all types of risky investments and stampeded toward the safety of U.S. government bonds. Bond prices rose sharply. And the yield on the 10-year U.S. Treasury note touched 1.44 percent, the lowest on record.
Those sinking bond yields will mean even lower mortgage rates. That’s because mortgage rates tend to track the yield on the 10-year Treasury note.
SOME BENEFITS FOR CONSUMERS
Gas is getting cheaper as demand slows globally. It’s dropped to $2.99 in some areas of South Carolina. It could soon fall below $3 in a handful of Southern states.
A plunge in oil prices has knocked more than 30 cents off the price of a gallon of gas in most parts of the U.S. since early April. The national average is now $3.61. Experts say it could drop to at least $3.40 before Labor Day.
As Americans spend less to fill their tanks, they’ll have more to spend on other purchases, from autos and furniture to appliances and vacations, which could help drive economic output and job growth.
BACK IN THE HUNT: OLDER WORKERS
Last month, 642,000 people began looking for work. And nearly half were 55 or older.
Many have had no choice. Household wealth has shrunk as home equity and stocks prices have declined or languished. And many older people are helping struggling adult children.
Sara Rix, a policy analyst at the AARP’s Public Policy Institute, suggested that the decline in unemployment in previous months lifted people’s hopes about their job prospects. That’s why many started looking for work again.
A SOBERING TREND
That more people are looking for work should be good news. It suggests that Americans are increasingly optimistic about their job prospects.
But analysts cautioned that May’s influx was a small one that doesn’t alter the broader trend. Heidi Shierholz, an economist at the liberal Economic Policy Institute, estimates that sluggish hiring has discouraged 3.6 million people from looking for work since the recession began in December 2007.
Consider the labor force participation rate. It measures the proportion of people who are working or looking for work. It rose last month to 63.8 percent. That’s slightly better than April’s 63.6 percent — the lowest in more than 30 years.
Yet it’s still far below the 65.7 percent rate from June 2009, the final month of the recession.
DUELING POLITICAL VIEWS
Obama said the jobs report shows the U.S. economy is not creating jobs “as fast as we want” but that the economy will improve.
“We will come back stronger,” Obama said. “We do have better days ahead.”
His Republican challenger, Mitt Romney, countered: “Today’s weak jobs report is devastating news for American workers and American families. …It is now clear to everyone that President Obama’s policies have failed to achieve their goals and that the Obama economy is crushing America’s middle class.”
GOVERNMENT ISN’T HELPING
Government jobs cuts are worsening the employment picture. The federal government shed 5,000 jobs in May. State governments cut 5,000 and local governments 3,000.
Overall, governments have cut jobs in 10 of the past 12 months.
Tax collections by state and local governments have been rising since mid-2009. Yet governments have steadily reduced spending. From January through March, government cuts reduced U.S. economic growth by 0.78 percent point to an annual pace of just 1.9 percent.
BIG CUTS IN CONSTRUCTION
Some major industries cut jobs sharply in May.
Construction firms cut 28,000 jobs. That was the sharpest such drop in two years.
Governments shed 13,000. A category of employers called “leisure and hospitality” cut nearly 9,000 positions, mostly because of jobs lost at amusement parks, museums and casinos.
Professional and business service firms, which include accountants, engineers and lawyers as well as temps and clerical staffers, dropped 1,000.
On a hopeful note, manufacturers added 12,000 jobs. Transportation and warehousing companies created nearly 36,000. And 46,000 jobs were added in education and health care. Hotels and restaurants added roughly 9,000 jobs.
CONSIDER THE ‘EMPLOYMENT’ RATE
To assess the job market, most people look at the unemployment rate. Since August, it’s dropped from 9.1 percent to 8.2 percent.
But the rate can be misleading. It doesn’t count people without jobs who aren’t looking for one.
That’s why the “employment rate” can be a more useful gauge. It measures the percentage of adults who do have jobs. And it’s painting a more sobering picture.
Since August, the employment rate has improved only slightly, from 58.3 percent to 58.6 percent. That’s lower than when the recession ended in June 2009, when it was 59.4 percent.
EUROPE STILL WORSE
As bad as the May employment numbers were, it’s a lot worse in Europe.
Unemployment in the 17 countries that use the euro currency hit 11 percent in April, the highest since the single currency was introduced in 1999, the European Union’s Eurostat office reported Friday.
“Europe would gladly trade places with the U.S.,” says Josh Feinman, global chief economist of DB Advisors.
But Europe’s problems are likely to pinch America too, by denting U.S. exports to Europe and rattling financial markets. And should the U.S. economy, the largest in the world, weaken further, that would further damage economies in Europe and Asia.
The job market remains tough even for the educated or experienced. Erica Johnson, 33, calls herself a “couch-surfing Ph.D.” because she’s been sleeping on sofas in the homes of friends and relatives in Lexington, Ky. Armed with a doctorate in education policy, she’d like to work as a college administrator.
But most management jobs she’s pursued require more experience. Yet she’s considered overqualified for lower-level jobs.
“There aren’t a lot of midlevel openings,” Johnson said, after many states have cut education budgets. Phil Allen, 48, a veteran PR professional in suburban Chicago, says he’s had 70 job interviews in the past year. He gave a 20-minute presentation as part of an all-day interview for one opening this spring and left thinking, “There’s no way I’m not going to get this job.”
“But I didn’t get it,” he said. “That’s kind of a crushing thing.”
Three years into the recovery, hiring remains weak by one key historical standard.
In February 1984, 15 months after the most recent severe recession had ended, the annual pace of hiring amounted to 6.5 percent of total U.S. employment.
Yet since the Great Recession officially ended in June 2009, job gains have been fitful. Hiring has only recently topped 2 percent of total payrolls.
What’s going on?
Mainly, the economy is too weak to drive more job growth. Consumers are still cautious about spending. And the housing sector is still weak. Both are weighing on the economy more than in previous recoveries.