The American economy shed another 345,000 jobs in May as the unemployment rate spiked to 9.4 percent, but the losses were far smaller than economists anticipated, amplifying hopes of recovery.
“It supports the idea that before the end of the year and maybe even by late summer we could be at flat employment,” meaning no more net job losses, said Alan D. Levenson, chief economist at T. Rowe Price in Baltimore. “During the course of next year, we’ll probably start to feel better.”
But many analysts emphasized that the marked slowdown in the pace of job market deterioration — while positive — did not alter the reality that the economy remains very weak, with grave challenges still bearing down on millions of households and businesses.
“These are still terrible numbers,” said Ian Shepherdson, chief United States economist at High Frequency Economics. “We’re a million miles away from a recovery.”
Rather than a sign of renewed vigor, the latest monthly snapshot of the job market suggests the end of the acute panic suffered last fall, when the investment bank Lehman Brothers collapsed and credit froze throughout much of the economy.
“That wild disgorging of inventories and workers that we saw in the aftermath of Lehman, what you’re seeing is the reversal of that dynamic,” said Robert Barbera, chief economist at the research and trading firm ITG. “You had companies throughout the world that suddenly had serious concerns about access to capital and they slashed spending and cut workers well beyond any connection to demand. There’s now a better tone to the data.”
But conspicuously absent, Mr. Barbera said, was any sign of a fresh engine for economic growth. Although home prices appear to have hit bottom in some areas of the country, construction remains weak. The auto industry and retailing remain mired in distress. The job market is likely to remain in the doldrums for many months, he said.
For more than a decade, economic growth and attendant American job opportunities were fueled by swelling wealth and liberal access to credit. As home prices soared, homeowners availed themselves of myriad forms of credit that turned increased real estate values into cash. They sprinkled this money on an array of industries, generating jobs from auto factories and lumber mills to construction companies and restaurants.
Now, as paychecks disappear, consumers are increasingly inclined to save — a source of broad grief in a country in which consumer spending makes up roughly 70 percent of economic activity.
“It’s welcome news that payrolls are declining more in line with other recessions, but we need consumption,” said Lawrence Mishel, president of the labor-oriented Economic Policy Institute in Washington. “People are not going to be moving forward based on housing wealth, and they’re not going to be taking on debt. They’ve got to get wage growth.”
Indeed, wage growth has been stagnating even as gasoline and medical costs rise, putting pressure on household finances. Wages were 3.1 percent higher in May than a year ago, but that growth slowed drastically this year. In April and May, average hourly wages grew just 0.1 percent, to a seasonally adjusted $18.54, from $18.52, according to the Labor Department. Wages for manufacturing workers fell 0.1 percent.
The jobs report presented a statistical puzzle. On the one hand, the net decline in jobs was much smaller than expected and the lowest figure since September. The economy lost an average of more than 700,000 jobs a month during the first three months of the year. The pace of losses eased to a revised 504,000 in April and then fell more in May, a welcome sign of improvement.
At the same time, the unemployment rate leapt to its highest rate in more than a quarter-century, reinforcing fears that joblessness will probably reach double digits.
This disconnect owes to the way in which the government collects jobs data. The number of jobs comes from a survey of employers, while the unemployment data is derived from a survey of households. In April and May, the number of people who told surveyors they were actively looking for work increased by more than one million. These people would have previously been excluded from the unemployment calculation as not being part of the labor force. Now, they are back in the hunt — an apparent sign of improvement — yet struggling to secure positions in a still awful market.
The jobs report underscored the lean offerings, with May bringing another brutal stretch of layoffs, furloughs and pink slips. Manufacturers cut 156,000 jobs, including big losses for workers who make machinery, cars and car parts and computers.
That picture will almost surely worsen: Just this week, General Motors, now in bankruptcy, announced it was closing or idling 14 plants across the country, including several in Michigan, which has the nation’s highest unemployment rate. The closings will affect as many as 20,000 workers.
Construction jobs fell by 59,000, though that was a marked improvement from just a month ago, when 108,000 construction workers lost their jobs.
Health care remained a rare bright spot, adding 23,500 jobs. Professional and business services shed 51,000 jobs, though that represented a slower pace of loss than in recent months.
Over all, the economy has now shed six million jobs since the recession began in December 2007, and some economists anticipate an additional two million job losses to come. Even after the economy resumes growth, perhaps later this year, businesses are likely to be conservative in their expansion, credit will probably remain tighter than in years past, and consumers will be more inclined to save.
Instead of hiring full-time workers, many employers will probably rely on temporary hires or simply add hours for their existing employees.
“There’s no question that the jobless rate is going to continue to rise,” said Bernard Baumohl, managing director of the Economic Outlook Group. “It’s a dismal job market. It’s going to remain awful easily for the balance of this year. Even when the economy begins to recover, we might be witnessing the mother of all jobless recoveries.”
That would keep the pressure on the seven million Americans who have been out of work for 15 weeks or longer — the largest number ever.
Dante Whitfield is among those ranks. Since losing his job as a legal courier in February, Mr. Whitfield, 35, said he had been riding the bus around San Jose, Calif., in a futile quest for work, subsisting on unemployment checks and the value menu at McDonald’s.
“There’s days I come home in tears,” he said. “You just feel lost. You don’t know what to do.”