Slower US job losses signal recession is starting to ease

Employers eliminated the fewest jobs in eight months in May, strengthening signs that the recession is easing, while a drop in wage growth offered a warning the recovery may be muted.

Payrolls fell by 345,000, less than forecast, while the unemployment rate hit a 25-year high of 9.4 per cent, partly because more people joined the workforce to look for jobs, Labor Department figures showed. The annual rate of average hourly earnings growth touched its lowest since November 2005.

“The rate of decline has slowed some, but the losses to date are causing sharp declines in US per capita income,” David Malpass, an economist and president of Encima Global in New York, wrote in a note to clients. Malpass predicted a “slow recovery” from the deepest recession in half a century.

Some investors focused on the report’s relief from payroll losses that surpassed half a million in each of the previous six months. The dollar rallied, Treasury yields rose and some traders added to bets the Federal Reserve will raise interest rates this year. The head of the panel that dates US recessions warned it’s still “too early” to call an end to the slump.

Americans are spending less and saving more as home values fall and companies from American Express Co to General Motors Corp continue to cut workforces.

GM bankruptcy

The bankruptcies of General Motors and Chrysler LLC may generate more job losses. AutoNation Inc, the largest US new- vehicle retailer, plans to close seven showrooms, while Visteon Corp, the former parts-making unit of Ford Motor Co, and chassis manufacturer Metaldyne Corp also filed for bankruptcy.

Builders cut 59,000 jobs and financial firms cut 30,000. Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 120,000 workers. Retail payrolls decreased by 17,500. Government payrolls fell by 7,000 after rising 92,000 in the prior month.

Some companies are looking to grow. Wal-Mart Stores Inc, the largest US private employer, plans to add more than 22,000 jobs for the 142 to 157 outlets it may open or expand in the 12 months through January 31.

Rising unemployment and record wealth destruction mean consumer spending may not sustain the gains reported in the first quarter. Purchases fell in April as Americans boosted the savings rate to a 14-year high. Department stores Macy’s Inc and Dillard’s Inc and luxury chain Saks Inc reported steeper- than-forecast sales declines for May.

Credit drops

Another report showed consumer borrowing dropped by $15.7 billion in April, the second-biggest decline on record, as loans remained difficult to get. Consumer credit fell at a 7.4 per cent annual rate to $2.52 trillion, the Fed reported yesterday in Washington.

Yields on benchmark 10-year US notes jumped to 3.83 per cent in New York on Friday from 3.71 per cent June 4, and the dollar climbed to a four-week high against the yen. The Standard & Poor’s 500 Stock Index slipped 0.3 per cent to 940.09 after rising as much as 1 per cent earlier.

Stocks initially rallied, then slid on concern that the Labor Department had overstated the slowdown in job losses. They recouped losses later when Labor Secretary Hilda Solis said the report was accurate. Labor’s estimate of net jobs created by the formation of new companies and demise of established firms, known as the birth/death model, had fed the confusion.

Fed rate

Some traders for the first time in months began to price in expectations that the Fed will raise interest rates this year as the economy improves.

Federal-funds futures contracts on the Chicago Board of Trade show a 59 per cent probability the central bank will lift its target rate for overnight bank borrowing to at least 0.5 per cent by November. The odds were 27 per cent a day earlier.

While the economy is showing signs of stabilising, it’s “way too early” to say the contraction is over, said Robert Hall, who heads the National Bureau of Economic Research’s Business Cycle Dating Committee, the group that officially makes the call.

6 million

The world’s largest economy has lost 6 million jobs since the recession began in December 2007, exacerbating the biggest drop in any post-World War II economic downturn.

The US may suffer additional “sizable” job losses, Fed Chairman Ben S Bernanke said this week in testimony to lawmakers. While economic growth will return “later this year,” he said, unemployment will rise “into next year.”

“We are starting to see indications of economic progress as the recovery package begins to take hold,” Representative Carolyn Maloney, a New York Democrat who chairs the congressional Joint Economic Committee, said in a statement. Rising unemployment “is a sobering reminder that we still have a long way” to go, she added.