Economy appears to be slowing

Martin Crutsinger

Friday, June 2, 2000 | 11:15 a.m.

WASHINGTON -- In the most dramatic sign yet that the U.S. economy is slowing, the unemployment rate climbed back to 4.1 percent in May as American businesses lost 116,000 jobs, the worst showing in nearly nine years.

The Labor Department reported today that the nation's unemployment rate climbed by 0.2 percentage points from a 30-year-low of 3.9 percent in April. The increase returned the jobless rate to the same 4.1 percent level it had reached in March.

Average hourly earnings rose just 0.1 percent in May, a sharp slowdown after a 0.4 percent increase in April.

While fewer private-sector jobs and slower wage gains are not good for workers, Wall Street viewed the report as evidence the economy is slowing to a more moderate pace that might persuade the Federal Reserve not to raise interest rates again.

Stocks surged after the report. The Nasdaq composite index had climbed 195 points at midday and the Dow Jones industrial average was up 160 points.

In a separate sign of a slowdown, the Commerce Department said today that orders to American factories fell by 4.3 percent in April, the biggest decline since November 1990, when the country was mired in the last recession.

The decline, which followed a 2.7 percent rise in March orders, reflected falling orders in a number of industries from steel plants to auto and aircraft factories.

Orders for durable goods, items expected to last three or more years, fell 6.5 percent, the biggest setback since December 1991. Orders for nondurable products fell 1.5 percent.

Analysts saw the new reports as further indication that the economy is finally slowing under the impact of the Fed's interest rate campaign. The central bank has boosted rates six times over the past year.

"The May payrolls report was a shocker to say the least," said Joel Naroff, head of his own economic forecasting firm in Holland, Pa. Analysts had not expected to see the decline in private-sector jobs.

Before the recent signs of a slowdown began appearing, many economists had feared that the central bank would follow up its aggressive half-point rate increase of May 16 with another half-point boost on June 28.

The employment report showed that overall payrolls rose by 231,000 in May, but all the strength came in government hiring of temporary workers to conduct the census. There was a gain of 357,000 census workers.

However, American businesses cut 116,000 jobs during the month. It was the first time that U.S. companies had suffered a job loss for any month since a severe winter storm disrupted the economy in January 1996. It was the biggest loss since a decline of 129,000 private sector jobs in November 1991 as the country was pulling out of the last recession.

The decline in nongovernment jobs reflected widespread weakness in a number of areas. Manufacturing employment was 17,000 in May, after posting gains in both March and April.

Apparel factories dropped 8,000 jobs and textile firms shed 4,000 workers. Unions for those two industries lobbied hard last month to try to keep the House from passing a landmark China trade bill, fearing that increased imports from that nation would make their employment situation even worse.

Construction employment declined by 29,000 in May with the loss concentrated in residential and heavy construction.