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Weak economy stalls economy

By LUCIA MUTIKANI
June 3, 2011

U.S. employment probably lost steam in May as high energy prices and the effects of Japan’s earthquake bogged down the economy.

Nonfarm payrolls likely increased 150,000 last month, according to a Reuters survey of economists, after advancing by an 11-month-high of 244,000 jobs in April.

The job creation slowdown would confirm the economic weakness already flagged by other data from consumer spending to manufacturing. It could stoke fears about the depth and duration of a slowdown that started early in the year.

Economists still believe the lull in activity will be temporary. They cite high gasoline prices, bad weather and disruptions to motor vehicle production because of a shortage of parts from Japan as factors weighing on growth.

“It is clear we have temporarily entered a soft patch,” said Christopher Probyn, chief economist at State Street Global Advisors in Boston.

“Nobody knows how soft and how long, but the best case view is that the fundamentals of the recovery remain intact and the economy will re-accelerate in the second half of the year.”

The Labor Department will release its closely watched employment report at 8:30 a.m. The report provides one of the best early reads on the health of the U.S. economy and it regularly sets the tone for global financial markets.

Worries about the pace of the U.S. economic recovery weighed on stocks on Thursday. Investors took a defensive stance given the risks May job growth numbers could prove even worse than the market expects.

While the recent string of weak data has sparked talk about the need for the Federal Reserve to extend its asset purchasing program when it expires this month, analysts believe policymakers will take a soft payrolls report in stride.

Officials at the U.S. central bank regard the current downshift in the economy as temporary.

The Fed has been mapping out a strategy on how to start removing some of the massive stimulus it has lent the economy, and officials have made clear the bar for a further easing in monetary policy is high.

Private employers, who have shouldered the burden of job creation, are expected to have taken a step back last month, increasing payrolls by 175,000. In April, they added 268,000 jobs, the most in five years.

TEMPORARY FACTORS AT PLAY

“We should keep in mind that we have seen a lot of factors weighing on the U.S. economy in April and May, and should take this report with a pinch of salt,” said Harm Bandolz, chief U.S. economist at UniCredit Research in New York.

“We may see some positive surprises in the second half of the year once the impact fades.”

High gasoline prices hurt consumer spending in the first quarter, restricting economic growth to a 1.8 percent annual pace after expanding at a 3.1 percent rate in the October-December period.

The economy has regained only a fraction of the more than 8 million jobs lost during the recession. Economists say payrolls growth above 300,000 a month is needed to make significant progress in shrinking the pool of 13.7 million unemployed Americans and reducing 9 percent unemployment.

The jobless rate is thought to have edged down to 8.9 percent last month, but it could surprise on the upside if some discouraged workers who had been inspired by the pick up inpickup hiring in April decided to re-enter the labor market.

“There is so much slack in the labor market it’s going to take a long time to get the unemployment rate down to between 6 and 7 percent. That’s going to take years,” said Stephen Bronars, a senior economist at Welch Consulting in Washington.

That could be bad news for President Barack Obama, whose chances of re-election next year could hinge on the health of the economy, particularly the labor market.

The report is expected to show the private services sector accounted for the bulk of job gains last month.

Within the private services sector, gains were expected in leisure and hospitality, which added 46,000 jobs in April. But retail employment, which recorded its largest increase in 10 years in April, likely slipped.

Little or no boost was expected from McDonald’s recruitment of about 50,000 new staff in April, which was after the survey period for that month’s payrolls. Spring is traditionally a strong hiring period for McDonald’s.

Manufacturing payroll growth was expected to have moderated last month after the sector added 29,000 new workers in April.

Construction employment was also likely weak. Housing starts fell sharply in April.

The report is expected to show the average work week unchanged at 34.3 hours and few signs of wage inflation, with average hourly earnings rising 0.2 percent after edging up 0.1 percent in April.

Copyright © 2011 Reuters

3 Responses to Weak economy stalls economy

  1. woody188

    June 6, 2011 at 8:06 pm

    Ha ha, this “temporary soft patch” has been ongoing since 2009 when they announced the recession was over. Does anyone believe these buffoons any longer?

    Record flooding means fewer crop yields this fall folks. Farmers around me are talking about the possibility of people going hungry as early as this winter, possibly right here in the US of A.

    We’ve surpassed the record low housing level of the Great Depression. We have near the same level or the same level of employment as during the Great Depression. The only reason you don’t see soup kitchen lines like the Great Depression is because 1 out of every 7 Americans is on food stamps. That is not sustainable!

    Prepare now or perish later. This is your last chance to get your house in order. No one can save you. You must save yourself. Please for the love of God prepare now!

    • Carl Nemo

      June 6, 2011 at 8:44 pm

      I thought I’d supply a pie chart as to how much money “We the People” owe to ourselves and the world at large. Interestingly the greatest amount of promissory debt is on the domestic front and not to overseas entities.

      http://www.ritholtz.com/blog/2011/03/who-does-the-us-owe-money-to/

      Many folks working for the government and those that are retired somehow think that they have some type of ‘contract’ with Uncle Sam. Unfortunately he reserves the right to reneg at any time in the event it’s a question of the future health and safety of the Republic as opposed to monetary obligations to our citizens. So U.S. citizens best be prepared for a major ‘haircut’ in the months and years to come.

      China and Japan represent a relatively small portion of this multi-trillion dollar debt obligation.

      As far as people starving, fear not! America’s glut of fast food chains will take up the slack for shortcomings found on grocery store shelves at a price of course. / : |

      Carl Nemo **==

      • woody188

        June 6, 2011 at 9:15 pm

        Those individuals and institutions means your 401(k), pensions, and hedge funds. We can forget about retirement. Retirement will come to mean the day we fall into the grave.