Job growth could be weakening as economy sputters
Friday, June 3, 2011
WASHINGTON (AP) — A weakening economy may not have produced many jobs last month, threatening future economic growth.
Economists are bracing for a disappointing jobs report Friday. Higher oil prices, stagnant wages and a depressed housing market are holding back the economy. Analysts expect that companies likely hired far fewer people in May than the previous three months.
Some economists now forecast that employers added fewer than 100,000 jobs last month, which would be sharp downturn from the average gain of 230,000 in February, March and April.
Other analysts aren’t as dramatic -- Goldman Sachs reduced its estimate to 100,000 from 150,000 -- but if accurate, they would still suggest a much weaker job market.
The biggest question raised by a sluggish report: Is it temporary, or the beginning of a weaker trend?
Many factors holding back the economy, such as the disruptions to manufacturing output stemming from Japan’s March 11 earthquake, are temporary.
But if they lead to fewer jobs, that could cut consumer spending, threatening overall growth for the rest of this year, Goldman Sachs economist Jan Hatzius wrote in a note to clients Wednesday.
The unemployment rate is likely to dip to 8.9 percent from 9 percent the previous month, economists expect, according to a survey by FactSet.
Despite the worries about slowing growth, the government has shifted away from economic stimulus and is focused on debt reduction. The Federal Reserve isn’t expected to take any further steps to spur growth. Persistent economic weakness could imperil President Barack Obama’s prospects in the 2012 election.
“There are reasons to be worried,” said Michelle Meyer, an economist at Bank of America Merrill Lynch. “It appears there’s not much desire to do more in Washington even as the economy weakens.”
Pressure to focus on debt reduction was heightened Thursday by a warning from Moody’s Investors Service. The credit rating agency said it might downgrade the nation’s credit rating if the government failed to make progress in raising the debt limit in coming weeks. Republicans say they will agree to raise the limit only if Democrats back deep spending cuts.
Higher gas prices have left less money for consumers to spend on other purchases, like furniture, appliances and vacations. And average wages aren’t even keeping up with inflation. As a result, consumer spending, which fuels about 70 percent of the economy, is growing sluggishly.
Oil prices soared from about $70 a barrel last summer to as high as $115 this spring. They were driven up by turmoil in the Middle East and rising demand in developing countries. More expensive oil sent gas up to nearly $4 a gallon nationwide, though both oil and gas prices have ticked down in the past few weeks. Gas averaged $3.78 a gallon Thursday, according to AAA.
Higher prices for energy and raw materials have also left businesses increasingly cautious about hiring and expanding. And growth in manufacturing output weakened last month, in part because the March earthquake in Japan disrupted supplies of electronic components and other parts. Those disruptions have also reduced auto production and sales.
In recent days, economists have sharply reduced their expectations for hiring in May. Nomura Securities now projects a gain of 85,000, down from 175,000 earlier this week. The consulting firm High Frequency Economics cut its estimate to only 50,000, from an earlier target of 200,000.
Nariman Behravesh, chief economist for IHS, thinks the economy will pick up once gas prices decline further and Congress and the White House resolve their conflict over the debt ceiling.
More evidence of the economy’s weakness surfaced Thursday:
— The number of people applying for unemployment benefits remains stuck at a level that signals weak job growth.
— Factories received fewer orders for computers, autos, industrial machinery and other goods in April.
— Small businesses are hiring less. May marked a second month of weakness after solid gains in February and March.
So what happens now? In the short run at least, not very much.
Many economists think the nation would have to start losing jobs again before the Federal Reserve would be willing to pump more money into the economy.
Until the acrimonious debate about whether to raise the debt limit and slash spending is resolved, many companies will be wary about spending more of their cash hoard, Behravesh said.
When the debt-ceiling issue is resolved, he said, “businesses might feel less uncertainty about the outlook, and be more willing to get out there and invest and hire.”
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