Home >> United States & Canada >> Economics & Trade

     Email   Print 

Economy Adds 75,000 Jobs in May - Growth Slowing in Second Quarter

Prof. Peter Morici - 6/2/2006

Today, the Labor Department reported the economy added 75,000 payroll jobs in May. The consensus forecast was 167,000. The revised figure for April was 126,000. Disappointing jobs growth in April and May indicate the economy is slowing more than Wall Street analysts and Federal Reserve policymakers have anticipated. The slowdown in the housing market and higher gas prices have dampened auto and other retails sales, and the jobs data indicate the economy is headed for much slower growth and perhaps a downturn.

Wages were up less than 0.1 percent in May after rising 0.6 percent in April.

These wage and jobs data indicate significant easing in labor markets. Coupled with strong productivity growth, higher wages are not likely to push up key measures of core inflation closely watched by the Fed.

Overall, conditions in labor markets remain mixed. Shortages have emerged for workers with key technical skills. For example, construction, business and information technology services, and health care remain strong for workers with technical specialties.

Meanwhile workers with only high school or a few years of college, having few specialized skills, faced mounting challenges securing positions offering good pay and health benefits. In the Midwest, the weight of troubles at GM, Ford and their suppliers are felt, and in portions of the Southeast, the continuing woes of the textile and furniture sectors weigh down wages.

It is clearly a “haves” and “haves not” labor market, and these conditions go a long way toward explaining why President Bush cannot convince Americans the economy is on solid ground, even as it demonstrates robust GDP and productivity growth.

Manufacturing shed 14 thousand jobs in May, after adding jobs in April. In recent months, manufacturing has been showing more bounce, but the May jobs data indicate a slowing economy.

Overall, manufacturing has lost 3million jobs since 2000, and the patterns of past expansions indicate it should have regained about 2 million by now. The huge trade deficit and overvalued dollar against the Chinese yuan play key roles, destroying jobs in manufacturing and knowledge-driven service industries that pay above average wages. In turn, these conditions suppresses wages in communities dependent on manufacturing and other more established industries, and are an important factor creating a “haves” and “haves not” economy.

Unemployment fell to 4.6 percent largely because more adults chose to not participate in the job market. The adult labor force participation rate remains significantly lower than when George Bush took over stewardship of the economy. If adults were participating in the job market at 2000 levels, 2.7 million more people would be looking for work and unemployment would exceed 6 percent.