Jobless rate at highest level in nine years
By James P. Miller
Chicago Tribune
CHICAGO — The nation's unemployment rate inched higher in May, to 6.1 percent, the highest jobless reading in nine years, as the ongoing hemorrhaging of U.S. manufacturing jobs more than offset modest improvement in some other economic sectors.
Although the Labor Department's widely anticipated yesterday's report underscored the bleakness of the job market, it also contained hints that the sluggish economy may be gaining traction.
The unemployment rate is likely to rise further before year-end, predicted Economy.com economist Sophia Koropeckyi after yesterday's report.
"The labor market doesn't look as dire as it seemed to be a couple of months ago. Job losses are abating rather than accelerating."
Economists had been expecting to see the jobless rate move up to 6.1 percent from April's 6.0 percent level. They'd also anticipated the May report to show the nation suffered a net loss of about 39,000 jobs, but the Labor Department instead reported a less-daunting 17,000-job loss.
Combined with a revised April figure that was essentially break-even as far as jobs created or lost, the report appears to be "indicating that the economy may be getting past its low point," said Banc One Capital Markets economist Anthony Karydakis. "But this is far from a firm conclusion," he added.
Wall Street, which has been in a bullish mood for the past two weeks, opted for the same perspective: Markets initially jumped after the government report was released early yesterday, but by the end of the day's trading the run-up had largely eroded.
The market's lukewarm response likely reflects investor worries that the glimmers of good economic news contained in the latest report might make it less likely that Federal Reserve Board officials will cut interest rates this month.
Until yesterday, Merrill Lynch senior economist Gerald Cohen had been predicting the Fed would cut interest by one-half of a percentage point at the upcoming meeting.
But because unemployment is such a key driver of Fed Chairman Alan Greenspan's assessment of the nation's economic health, the better-than-expected May data have clouded the picture regarding further cuts, Cohen said yesterday in a research note.
"Today's report now raises some doubt as to whether a rate cut by the Fed is imminent or even necessary," echoed Wells Fargo economist Sung Won Sohn.
The May jobs data marked the first report the Labor Department has issued since it adopted significant changes in the way it calculates a host of factors.
The revisions show that the number of jobs lost since the nation first slid into recession more than two years ago is greater than previously thought, but they also suggest that in recent months the job market has been less gloomy than first reported.
Since U.S. employment peaked in the early months of 2001, nearly 2.5 million jobs have disappeared, said Economy.com's Koropeckyi. That's 650,000 more than early calculations had shown. But between December and April, losses under the revised count were 114,000, down from 322,000 under the previous count.
Between the lines of the latest employment figures, a number of national trends can be discerned. In the face of increasing financial pressure, for example, state and local governments have been eliminating jobs. As a result, even though the private sector managed to eke out a net gain of 8,000 jobs last month, the 25,000 loss in the government sector caused an aggregate loss of 17,000 jobs.
Similarly, employment increased modestly in such fields as construction, where low interest rates have spurred strong homebuilding activity; finance, particularly in mortgage refinancing sparked by the same interest trends; and in education and healthcare.
The number of people employed by temporary-help agencies grew. Investors consider such temp hires to be a prelude to permanent hires, as employers become more confident about the economy's health. But the nation's manufacturers, battered by low-cost imports, soft pricing and weak domestic demand, shed another 53,000 workers in May.
Even if the economy firms later this year, as many observers expect, the jobless rate is expected to climb as high as 6.5 percent. In part, that's because as conditions improve, "discouraged" workers who aren't presently counted as unemployed because they've stopped looking for work will resume their search for jobs; their return will boost the unemployment rate until they eventually land a position.
"Overall, this report will leave the markets still pushing for a Fed ease (of) 0.25 percent, but perhaps with a bit less conviction," said High Frequency Economics economist Ian Shepherdson. "It's still not a done deal."
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