Payroll growth slows, but jobless rate dips

Jeannine Aversa

Friday, June 3, 2005 | 9:47 a.m.

WASHINGTON -- Employers throttled back hiring in May, boosting jobs by just 78,000, the government reported today. The most sluggish pace of payroll expansion in nearly two years dramatized the erratic behavior of the nation's job market.

Despite the slow growth in payrolls, the Labor Department's latest snapshot of the jobs picture in the United States showed that the civilian unemployment rate actually dipped fractionally last month -- to 5.1 percent. That was down a notch from April's 5.2 percent jobless rate and was the lowest overall since September 2001.

The payroll gain of 78,000 followed a hiring spurt of 274,000 in April. Job cuts last month were reported in the categories of manufacturing, leisure and hospitality, and professional and business. Those losses tempered gains elsewhere.

The generally lackluster performance surprised economists. Before the report was released, they were predicting jobs to grow by around 175,000 and the jobless rate to hold steady at 5.2 percent.

"Clearly there's some disappointment here," said Anthony Chan, senior economist at JP Morgan Asset Management. "But this may be a gift to financial markets and Main Street because the Federal Reserve might not have to be so aggressive in raising rates. In that regard, it is almost a good report."

But on Wall Street, the report disheartened investors. The Dow Jones industrials were off 26 points and the Nasdaq was down 7 points in morning trading

The employment report often can offer seemingly conflicting pictures of what is happening in the labor market because figures are based on two separate statistical surveys. And there clearly was a mismatch between the two surveys in the report released today.

The unemployment rate is calculated on the basis of a survey of 60,000 households, sort of a poll of the jobs market. That survey showed that 376,000 people said they found employment last month, outpacing the number of people who couldn't find work.

But economists tend to give more credence to a much broader survey of business payrolls, one which examines 400,000 work sites. And that's the one that showed only 78,000 jobs added to payrolls.

President Bush wants to see the economy and the job market in good shape, especially as he tries to sell the public and Congress on his vision for revamping Social Security, which includes letting workers set up individual investment accounts.

Earlier this week, the president declared that the economy was strong, with more than 3.5 million new jobs added in two years. "Obviously, these are hopeful signs," he told a news conference Tuesday. "But Congress can make sure that the signs remain hopeful."

The 78,000 gain new jobs registered in May was the smallest since August 2003, when payrolls grew by a tiny 2,000.

Some analysts believe the high energy prices, rising costs for health care and certain raw materials could be making some employers cautious.

Oil prices surged to a new all-time closing high of $57.27 a barrel at the beginning of April and are now hovering above $54 a barrel.

To thwart an inflation flare-up, the Federal Reserve has boosted short-term interest rates eight times -- each in modest, quarter-point moves -- since last June. Economists still expect another increase when the Fed meets next at the end of this month. But Chan and other economists believed the report raised the odds that the Fed might take a pause or order fewer rate increases in the future.

Workers' average hourly earnings rose to $16.03 in May, up from $16 in April.

The average time that the unemployed spent in their search for work in May was 18.8 weeks, an improvement from the average of 19.6 weeks registered the month before.

On the payroll front, the report showed that manufacturers cut 7,000 jobs in May, following a loss of 9,000 in April. Leisure and hospitality companies shed 6,000 jobs last month, compared with a gain of 63,000 in April. Professional and business services trimmed payrolls by 1,000 in May, a deterioration compared to an increase of 33,000 reported in April.

Retailers added more than 10,000 jobs in May, a deceleration from the nearly 27,000 added in April. Construction companies boosted payrolls by 20,000 last month, compared with 48,000 in April.