US economic slowdown extends with increase in unemployment rate

The unemployment rate in the US unexpectedly climbed to 9.1 per cent in May and payrolls grew at the slowest pace in eight months, showing employers are losing confidence as the economy slows.

The jobless rate increased to the highest level this year from 9 per cent a month earlier, Labor Department figures showed yesterday in Washington. Employers added a less-than-projected 54,000 jobs last month, after a revised 232,000 gain in April that was smaller than initially estimated. The median forecast in a Bloomberg News survey called for payrolls to rise 165,000.

The absence of faster job growth may weigh on consumer spending, which makes up 70 per cent of the economy, even as Americans find cheaper prices at the gas pump. The data make it more likely the Federal Reserve will hold its benchmark interest rate near zero into 2012, while also posing a challenge to President Barack Obama, whose re-election prospects hinge on bringing down unemployment.

“The weakness was broadbased,” said Sung Won Sohn, an economics professor at California State University-Channel Islands and former chief economist at Wells Fargo & Co. “Robust employment gains are not in the cards in coming months. The economy has simply hit a temporary soft patch.”

Stocks yesterday trimmed losses after another report showed service industries expanded more than forecast in May. The Standard & Poor’s 500 Index dropped 1 per cent to close at 1,300.16 yesterday in New York. The yield on the benchmark 10- year Treasury note fell to 2.99 per cent on June 3 from 3.03 per cent the prior day.

SERVICES ACCELERATE
The Institute for Supply Management yesterday said its index of non-manufacturing businesses increased to 54.6 in May from 52.8 a month earlier. The median estimate of 74 economists surveyed by Bloomberg projected the measure would rise to 54. A reading above 50 signals expansion. The Labor Department’s figures showed private hiring, which excludes government agencies, rose 83,000 last month. Private payrolls increased 251,000 in April, initially reported as a gain of 268,000. Factories cut payrolls in May for the first time in seven months, partly reflecting a drop at motor vehicles and parts producers that may have been related to a components shortage after the earthquake in Japan. Employment at retailers, leisure and hospitality companies and state and local governments also decreased.

“Some of the engines of hiring just went away,” said Julia Coronado, chief economist for North America at BNP Paribas in New York, who projected a 75,000 gain in May employment. “Combined with the slowdown in consumer spending, it raises concern that the slowing in hiring could be with us for a while.”

CUTTING FORECASTS
Economists at Barclays Capital Inc. yesterday cut their forecast for second-quarter economic growth to a 2 per cent annual rate from a prior estimate of 3.5 per cent. They also lowered the projection for the third quarter to 3 per cent from 3.5 per cent.