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Private employers hold back on hiring in May

by Jeannine Aversa
| June 6, 2010 9:00 PM

WASHINGTON - A swell in temporary government hiring for the census drove almost all the job market's gains last month - a huge disappointment to Wall Street and a sign that private employers aren't yet confident enough in the recovery to start adding workers with gusto.

Daunted by the European debt crisis and a falling U.S. stock market at home, American businesses added just 41,000 jobs in May, the fewest since January. The government hired 10 times as many for the national census, but those positions will begin to disappear as summer arrives.

At least on paper, the 431,000 total new jobs was the biggest gain in a decade. The unemployment rate dipped to 9.7 percent from 9.9 percent, mainly because hundreds of thousands of people gave up searching for work and were no longer counted.

"On the surface, they look great," Joel Naroff, president of Naroff Economic Advisors, said of the numbers. "But that beauty was only skin-deep. The private sector is not out there hiring like crazy."

Wall Street interpreted the numbers as a big letdown, a sign that the recovery, if not derailed, is at least stalling. The Dow Jones industrial average sank from the opening bell and tumbled 323.31 points, its second worst slide of the year. The index closed below 10,000 for the second time in two weeks. All the major indexes were down more than 3 percent.

The new employment snapshot, released Friday by the Labor Department, indicated that many private employers are still wary of bulking up their work forces. And it suggested the economic recovery may not bring help fast enough for millions of Americans still unemployed.

The slowdown isn't unusual for an economic recovery. Hiring can slow in one month, then accelerate the next, as was the case after the 2001 recession. But that recession was relatively brief and mild. The Great Recession wiped out so many jobs that it will take unusually strong hiring to bring substantial relief. And neither the Federal Reserve nor the Obama administration expects that to happen soon.

Nor are Americans spending as lavishly as they typically do when recessions end. Wages are barely increasing. And the stock market has taken a beating. If shoppers stay frugal, businesses could become even less confident about adding new workers.

The European debt crisis hurts, too.

"We had all this bad news coming out of Europe, which made employers more cautious," said Tig Gilliam, CEO of Adecco Group North America, an employment services company.

The government hired 411,000 workers in May for the census. But last month was the peak of hiring for the 10-year count, and it will begin to tail off in June. The loss of those temporary jobs could help keep the unemployment rate high.

The nation has produced jobs for five straight months. That's a sharp improvement from last year, when employers were slashing work forces to survive the recession. Yet at the current pace of job creation, it could take at least until the middle of the decade to recoup the 7.4 million jobs lost since December 2007 and reduce unemployment to a more normal 6 percent or below.

Economists think the rate will remain above 9 percent through November, potentially leaving both Democratic and Republican incumbents in Congress more vulnerable to defeat. The weak job market also puts pressure on senators to pass an extension of unemployment benefits.

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