Jobs Report Shows Market Still Sputtering

“Depressing” report does not bode well for recovery.

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Net job change chart for July 2011

After several months of promising gains, the economy delivered a blow to job seekers in May, adding only 54,000 jobs, the Labor Department reports.

That's far below expectations of 170,000. And as the pace of hiring slowed, the unemployment rate crept up to 9.1 percent—not an encouraging sign for the 13.9 million people who are out of work. U.S. stocks dropped sharply in early trading in response.

"It's hard to find a lot of silver linings in this report," says Lawrence Katz, an economics professor at Harvard University. "I do really worry that we are entering a period of stop and go, where ... we will not have the type of recovery needed to give young people the types of career chances they need and reincorporate the unemployed into the market."

Local governments continue to shed jobs, which means the little amount of growth seen in May was driven by the private sector, which added 83,000 jobs. Professional and business services added 44,000, and health care—one of the few industries that has grown consistently, adding an average of 24,000 jobs per month during the last year—expanded by 17,000 jobs. Mining also saw an increase in May, adding 7,000 jobs.

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Local government, on the contrary, shed 29,000 workers in May. Federal and state governments' job counts remained largely unchanged.

About 45 percent of the unemployed have been out of work for 27 weeks or more, a group called the long-term unemployed. About 361,000 job seekers joined those ranks in May, bringing the total to 6.2 million.

"[Having so many long-term unemployed] is becoming almost like [it's] permanent," says Al Angrisani, former Assistant Secretary of Labor, who now works with distressed companies. "It's becoming fundamentally a permanent part of our society, which means we could have 10 percent of our working population unemployed for a long time. And that has a lot of implications." He went so far as to call the report "depressing."

Even revisions for the last two months were disappointing: the economy added 194,000 jobs in March, rather than the previously reported 221,000, and April's count was downgraded to 232,000 from 244,000. Economists say the economy needs to add 350,000 to 400,000 jobs each month for the next three years to bring unemployment down to around 6 percent.

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Today's news was foreshadowed by a report from Automatic Data Processing, Inc., a private-sector job-count known as the ADP report. It showed private payrolls increased only 38,000 in May, far below expectations of 175,000.

That prompted economists to decrease their estimates for today's report from the Labor Department. Economists at High Frequency Economics, a research and analysis firm, dropped their forecast to an increase of 75,000 jobs rather than their previous estimate of 175,000—and that included a one-time boost from McDonald's, which hired 62,000 workers mid-April. While other revisions weren't quite as extreme, most reflected the same cautious sentiment. Even considering those revisions, May's report fell short.

The disheartening forecasts go beyond this month. The Conference Board, a non-profit business-research organization, predicts the unemployment rate will only drop to 8.5 percent by the end of 2012. "The chances of finding a job are likely to remain difficult in the next year and a half," says Gad Levanon, the group's associate director of macroeconomic research.

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That's not what job seekers want to hear. Nearly three-quarters of unemployed job hunters (as opposed to those who have a job but are looking for something better) feel less encouraged about their ability to find jobs than when they started looking, according to a survey Angrisani completed recently with The Research Intelligence Group. Fifty-eight percent of the 400 households that participated reported companies are not hiring, and 54 percent said prospective employers say their skills aren't adequate or don't match the job requirements. "We're seeing the economy not move to the next level," Angrisani says.