Share this article

print logo

Grim jobs report dims hopes for economy; Dow Jones falls 275 points in worst day of year

The American economy is in trouble again.

Employers in the United States added only 69,000 jobs in May, the fewest in a year and not even close to what economists expected. For the first time since June 2011, the unemployment rate rose, to 8.2 percent from 8.1 percent.

It was the third month in a row of weak job growth and further evidence that, just as in 2010 and 2011, a winter of hope for the economy has turned to a spring of disappointment.

"This is horrible," said Ian Shepherdson, chief economist at High Frequency Economics, a consulting firm.

The job figures, released Friday by the Labor Department, dealt a strong blow to President Obama at the start of a general election campaign that will turn on the economy.

Indeed, it took Republicans just a few minutes to pounce on the dismal news as a sign of failed leadership.

The new figures also deepened the pessimism of investors, who even before the report was released were worried about a debt crisis in Europe with no sign of solution and signs of a slowdown in the powerhouse economy of China.

The Dow Jones industrial average fell 275 points, its worst day of the year, and for the first time was down for 2012. The Standard & Poor's 500 index is almost 10 percent below its 2012 high, the traditional definition of a market correction.

Mitt Romney, who on Tuesday cleared the number of convention delegates required to win the Republican presidential nomination, told CNBC that the report was "devastating."

He called for an emphasis on energy development, pledged to "kill" the health care overhaul that Obama saw through in 2010 and said he would reduce taxes and government spending. The clearest fix for the economy, he said, was to defeat Obama.

"It is now clear to everyone that President Obama's policies have failed to achieve their goals and that the Obama economy is crushing America's middle class," said Romney, the former Massachusetts governor.

Obama, in Minnesota, pushed a proposal to expand job opportunities for veterans returning from Iraq and Afghanistan. He said that the economy is not creating jobs "as fast as we want" but vowed that it would improve.

"We will come back stronger," he said. "We do have better days ahead."

Obama later told donors at a Minneapolis fundraiser that the last four years had been "as tough a period in our country's history as anything in our lifetimes, certainly since the 1930s." He said his administration had tried to make "dogged progress" but acknowledged "we're not out of the woods yet."

Alan Krueger, head of the president's Council of Economic Advisers, pointed out that the country has added jobs for 27 months in a row, including 4.3 million jobs in the private sector.

Underscoring the challenge for Obama with five months to go in the campaign, a May poll by the Associated Press and GfK, a research company, showed that 52 percent disapproved of Obama's handling of the economy while 46 percent approved.

Some financial analysts said that the dismal job figures put pressure on the Federal Reserve to take additional steps to help the economy, but it was not clear how much good the Fed could do beyond trying to inspire confidence.

The central bank has already kept the short-term interest rate it controls at a record low of almost zero since the fall of 2008, during the financial crisis, and pledged to keep it there through late 2014.

It has undertaken two rounds of massive purchases of government bonds, starting in March 2009 and November 2010, to help drive long-term interest rates down and stimulate stock prices. Another program to lower long-term interest rates, known as Operation Twist, was announced last September and ends in June.

But low interest rates, other analysts pointed out, are not the problem. An investor stampede into bonds on Friday drove the yield on the 10-year U.S. Treasury note as low as 1.44 percent, the lowest on record.

Fed Chairman Ben Bernanke testifies next week before a joint committee of Congress, and the Fed next meets June 19 and 20.

Complicating the challenge for the economy, tax cuts passed under President George W. Bush will expire after Dec. 31, as will a cut in the Social Security payroll tax. More than $100 billion in automatic spending cuts to defense and domestic programs also kick in Jan. 1. Less money in consumers' pockets next year and less spending by the government would be a significant drag on the economy.

Congress could extend the tax cuts, but Republicans control the House, and they and Obama disagree over whether to do so for all or for everyone but the wealthiest Americans.

The Congressional Budget Office has said the tax increases and spending cuts would cause the economy to shrink at an annual rate of 1.3 percent in the first half of next year. The economy grew at a 1.9 percent annual rate in the first quarter of this year.

And there is little significant action that the White House can take on its own.

The job figures in the United States added to evidence that the world economy is in peril again.

Spain insisted Friday that it is financially stable, but its borrowing costs are creeping close to the 7 percent level that forced Greece, Ireland and Portugal to seek international bailouts.

"There is virtually nothing positive in this report if you are trying to build a case for an economy that is supposed to be in recovery mode and gaining momentum," said Tom Porcelli, chief U.S. economist for RBC Capital Markets.

Investors made their disappointment clear.