WASHINGTON — Better-than-expected May employment numbers Friday showed that the breathtaking pace of job losses is moderating, but experts warn that the unemployment rate will continue to climb for months and job growth could remain sluggish for years.
Employers shed 345,000 jobs in May, the fewest since September, and far fewer than the 500,000-plus cuts that forecasters had expected. Job losses also were less bad in March and April than initially reported: 652,000 in March, not 699,000, and 504,000 in April, not 539,000, the Bureau of Labor Statistics said.
Those numbers show a clear moderating trend; they compare starkly with the 741,000 jobs lost in January, the worst month in the stretch.
While that's all better than expected, the BLS also reported that the nation's unemployment rate jumped by half a percentage point in May to 9.4 percent, driven up in part by 350,000 new entrants to the nation's work force. There are now 14.5 million unemployed Americans.
What these conflicting numbers suggest is that even as the U.S. economy begins climbing out of the recession, the labor market will remain depressed for some time.
After the 1990 and 2001 recessions, the economy continued to lose jobs for months. Even once the nation's gross domestic product — the total value of goods and services produced — begins to climb again, probably in the second half of this year, it won't feel much like recovery for the jobless.
"It may be a long time after GDP starts growing before we start adding jobs," said Heidi Shierholz, a researcher at the liberal Economic Policy Institute.
When the recession began in December 2007, unemployment was 4.9 percent. It's now 9.4 percent, and most economists expect it to peak at more than 10 percent by 2010. The highest post-World War II unemployment rate was 10.8 percent in 1982. The peak during the Great Depression was 25 percent.
According to the Economic Policy Institute, the economy must add 127,000 jobs a month just to keep up with population growth. That means that to offset the 6 million jobs that have been lost since the recession began and absorb new workers added to the work force since then, the economy must create 8 million jobs.
In addition, future job losses from the shrinking automotive industry haven't yet registered.
"Obviously, we haven't seen the impact of dealership closings from Chrysler and General Motors. I don't think we've turned the corner yet, and all the signals are kind of mixed," said Ravin Jesuthasan, a manager at the human resources consultancy Towers Perrin. "We're heading in the right direction, but it's tough to say yet that we've turned the corner."
After the 2001 recession, employment never returned to the peaks of the 1990s.
"There won't be a snapback in employment. Employers are going to be very cautious," Jesuthasan said. He pointed to structural economic changes, such as companies pushing more expensive labor-intensive work abroad or to contractors. "You are going to see wage growth constrained, and any sort of fixed cost associated with the employee is going to face downward pressure."
Hourly wages grew at a 3.9 percent annual rate from December 2007 to December 2008, but since then they've grown at a 1.3 percent annual rate, the BLS reported.
In recent years, companies have transferred more health care costs to their employees and farmed out anything that isn't core to the companies' missions. Experts think that companies will keep lowering their fixed costs and reward employees not with salary but with bonuses, recognition awards or matching employee investments in 401(k) retirement funds.
None of that spurs consumption, which traditionally drives about two-thirds of U.S. economic activity. Retail sales continue to shrink. People with declining incomes or no jobs or who fear that they'll lose the jobs they have don't spend freely.
"Rising unemployment rates are consistent with slower wage growth, and thereby weakness in personal income and, ultimately, consumer spending," John Silvia, chief economist for Wachovia, wrote in a note to investors. "The duration of unemployment continues to rise, suggesting continued stress on unemployed workers, who realize their unemployment will be longer than they feared. Rising duration suggests higher consumer credit delinquency rates."
The BLS also reported that the length of the average workweek fell in May to 33.1 hours, the lowest since recordkeeping began in 1964. Rather than fire workers, many employers are slashing hours, freezing pay and requiring employees to take unpaid leave, all steps that reduce the quality of work life, as well as compensation.
In addition, when part-time workers who can't find full-time jobs and laid-off workers who've stopped looking are factored in, the May unemployment rate soars to 16.4 percent, the BLS said.
"I think we have a lot of hurt in the pipeline, and I think we're going to have high unemployment for a very long time," said Lawrence Mishel, the president of the Economic Policy Institute.
Still, the new numbers underscore that the pace of unemployment is moderating. Vice President Joe Biden welcomed this trend on behalf of the Obama administration, and suggested that it reflects the impact of federal stimulus spending.
"Construction unemployment, for example, is down 59,000 jobs in May, cutting in half the average of 125,000 jobs lost each month over the first four months of this year. And so there (are) some direct signs that what we're doing is having an impact," Biden said.
He said that President Barack Obama and he would announce plans Monday to ramp up stimulus spending this summer to boost job growth. Still, he added a note of caution:
"Yes, it's an encouraging sign. But I want to make it clear — and caution everyone — there's certainly going to be more setbacks on the road before we get finally to recovery."
The BLS also reported that in May:
- Education and health care combined to add 44,000 jobs.
- The leisure and hospitality sector added 3,000 jobs.
- Factories lost 156,000 jobs.
- Retailers trimmed 17,500.
- Government shed 7,000.
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