U.S.Economy: Payrolls Fall Least in Eight Months (Update3)
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By Shobhana Chandra
June 5 (Bloomberg) -- The U.S. lost fewer jobs than forecast in May, reinforcing signs that the deepest recession in half a century is starting to abate.
Payrolls fell by 345,000, the least in eight months, after a revised 504,000 loss in April, the Labor Department said today in Washington. The jobless rate increased to 9.4 percent, the highest since 1983, in part as more people joined the labor force to look for work.
“The recession is very close to an end,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts, whose payrolls forecast matched the closest estimate in a Bloomberg News survey. “The labor market is still pretty awful, but vastly better than it was.”
The dollar rallied and Treasuries fell as optimism grew that the economy’s slump will soon end. Still, figures showing a drop in hours worked and slowdown in earnings indicate any recovery will be muted. Americans are spending less and saving more as home values fall and companies from American Express Co. to General Motors Corp. continue to cut back workforces.
Another report showed consumer borrowing dropped by $15.7 billion in April, the second-biggest decline on record, as unemployment surged and loans remained difficult to get. Consumer credit fell at a 7.4 percent annual rate to $2.52 trillion, the Federal Reserve reported.
Revisions added 82,000 to payroll figures previously reported for April and March, the Labor report said.
Yields on benchmark 10-year U.S. notes jumped to 3.84 percent at 4:16 p.m. in New York from 3.71 percent late yesterday, and the dollar climbed to a four-week high against the yen, gaining 2.4 percent to 98.85. The Standard & Poor’s 500 Stock Index slipped 0.3 percent to 940.09 after rising as much as 1 percent earlier.
The slowdown in firings is “encouraging,” Christina Romer, who chairs the White House Council of Economic Advisers, said in a Bloomberg Television interview. Still, “you can’t ever say when the unemployment rate is at 9.4 percent that’s good news, of course. We know the economy is still in a severe recession, but what this does say is we’re seeing the pattern we’d expect to see.”
Some traders for the first time in months began to price in expectations that the Federal Reserve will raise interest rates this year as the economy improves.
Federal-funds futures contracts on the Chicago Board of Trade show a 59 percent probability the central bank will lift its target rate for overnight bank borrowing to at least 0.5 percent by November. The odds were 27 percent yesterday.
Payrolls were forecast to drop 520,000 after a 539,000 decrease initially reported for April, according to the median of 76 economists surveyed by Bloomberg News. Estimates ranged from declines of 450,000 to 600,000. Job losses peaked at 741,000 in January, the most since 1949.
The jobless rate was projected to jump to 9.2 percent, with forecasts ranging from 9 percent to 9.4 percent.
The world’s largest economy has lost 6 million jobs since the recession began in December 2007, exacerbating the biggest drop in any post-World War II economic downturn.
The U.S. may suffer additional “sizable” job losses, Federal Reserve Chairman Ben S. Bernanke said this week in testimony to lawmakers. While economic growth will return “later this year,” he said, unemployment will rise “into next year.”
“We are starting to see indications of economic progress as the recovery package begins to take hold across the country,” Representative Carolyn Maloney, a New York Democrat who chairs the congressional Joint Economic Committee, said in a statement. “But the rising unemployment rate is a sobering reminder that we still have a long way.”
Including those that have stopped looking for work because they are discouraged by employment prospects and those working only part-time who prefer a full-time job, the jobless rate would have jumped to 16.4 percent in May, the highest level since comparable records began in 1994, from 15.8 percent the prior month.
Today’s report showed factory payrolls fell by 156,000 after decreasing 154,000 in the prior month. Economists forecast a drop of 150,000. The decline included a drop of 29,800 jobs in auto manufacturing and parts industries.
The bankruptcies of General Motors and Chrysler LLC may generate more job losses in coming months. AutoNation Inc., the largest U.S. new-vehicle retailer, plans to close seven showrooms, while Visteon Corp., the former parts-making unit of Ford Motor Co., and chassis manufacturer Metaldyne Corp. also filed for bankruptcy.
Builders cut 59,000 jobs after a 108,000 decline in April. Financial firms cut payrolls by 30,000, after a 45,000 drop the prior month.
Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 120,000 workers after reducing 230,000. Retail payrolls decreased by 17,500 after a 36,500 reduction.
Government payrolls declined by 7,000 after rising 92,000 the prior month.
Some companies are looking to grow. Wal-Mart Stores Inc., the largest U.S. private employer, yesterday said it plans to add more than 22,000 jobs. The Bentonville, Arkansas-based retailer will hire store managers, pharmacists, cashiers and others for the 142 to 157 outlets it may open or expand in the 12 months through Jan. 31.
Rising unemployment and record wealth destruction mean consumer spending may not sustain the gains reported in the first quarter. Purchases fell in April as Americans boosted the savings rate to a 14-year high. Department stores Macy’s Inc. and Dillard’s Inc. and luxury chain Saks Inc. yesterday reported steeper-than-forecast sales declines for May.
Stores are bracing for “a weak retail environment,” said Eric Wiseman, chief executive officer of VF Corp., the world’s largest clothing maker. Greensboro, North Carolina-based VF, which makes Wrangler jeans and JanSport backpacks, will trim inventories as it expects shipments to fall this year.
“Fear drives conservatism in consumer spending, and the biggest fear now is about losing jobs,” Wiseman said in an interview in May.
American Express, the largest U.S. credit-card company by purchases, will cut 4,000 positions as cardholders squeezed by job losses fail to pay debts.
Today’s report also showed the average work week shrank to 33.1 hours from 33.2 hours in April. Average weekly hours worked by production workers slipped to 39.3 hours from 39.5 hours, while overtime held at 2.7 hours for a second month. That brought the average weekly earnings down to $613.67 from $614.86.
Workers’ average hourly wages rose 2 cents, or 0.1 percent, to $18.54 from the prior month. Hourly earnings were 3.1 percent higher than May 2008, the smallest gain since November 2005. The gain in both measures matched economists’ forecasts