US job growth braked sharply last month for a third straight month and the unemployment rate rose for the first time in nearly a year, raising chances of further monetary stimulus from the US Federal Reserve to support the sputtering recovery.
Employers added a paltry 69,000 jobs to their payrolls last month, the least since May last year, with 49,000 fewer jobs created in the previous two months than had been thought, the US Labor Department said on Friday.
The report is troubling for US President Barack Obama, whose prospects of winning re-election in November could hinge on the health of the economy. Republican opponent Mitt Romney called the report “a harsh indictment” of Obama’s policies.
The jobless rate rose to 8.2 percent last month from 8.1 percent in April, although the increase reflected more people entering the labor force to look for work, a possible sign of growing confidence.
The data offered the clearest evidence yet that the deepening debt crisis in Europe and a slowdown in China were starting to dampen an already lackluster US recovery. Concerns over the course of US fiscal policy may also be weighing on sentiment.
“The US is not an island. What happens abroad matters here,” said Diane Swonk, chief economist at Mesirow Financial in Chicago.
“It is difficult for anyone to commit to hire when growth remains subdued, and our fiscal problems both at home and abroad appear to be compounding,” she added.
Stocks on Wall Street ended the week down more than 2 percent, extending last month’s rout. The Dow Jones Industrial Average sank into negative territory for the year.
Investors fearful of a global economic slump rushed into the safety of US government bonds, pushing the yield on the benchmark 10-year Treasury note to a record low — below 1.5 percent. The US dollar meanwhile fell against a basket of currencies.
The broadly weak payrolls report raised the odds of the Fed launching a third round of bond purchases or expanding on other efforts to help the flagging recovery, but many economists said it was unlikely the US central bank would pull the trigger at its next policy meeting on June 19 and 20.
Economists had expected payrolls to rise 150,000 and the unemployment rate to hold steady at 8.1 percent.
“There’s clearly less [economic] momentum than Fed participants had anticipated,” said Nigel Gault, chief US economist at IHS Global Insight in Lexington, Massachusetts. “We expect the Fed will probably try to keep pumping in stimulus in some form in the second half of the year.”
The Fed cut overnight interest rates to near zero in late 2008 and bought US$2.3 trillion in bonds to try to spur a stronger recovery. It has also said it expects to keep rates “exceptionally low” through to at least late 2014.
Last week, interest rate futures were pricing in the first rate hike by the end of 2014. On Friday, they shifted that date out to April 2015.
Some economists say there is not much the Fed can do, arguing that interest rates are already too low and want fiscal policy to take up the slack. That is an unlikely proposition, given opposition to increased government spending and sharp political divisions during an election year.
Obama, speaking to workers at a Honeywell plant in Golden Valley, Minnesota, pressed Congress to act on an economic “to-do” list that includes tax incentives for businesses to hire more workers and helping homeowners refinance mortgages.