The US economy may be in for a long period of soft growth after employers hired the fewest number of workers in eight months last month and the unemployment rate rose to 9.1 percent.
Nonfarm payrolls increased 54,000 last month, the US Labor Department said on Friday, just over a third of what economists had expected.
However, analysts saw little chance the economy would slide back into recession, given that temporary factors like high gasoline prices and supply chain disruptions from the earthquake in Japan were constraining growth.
“The recovery has not been aborted. The economy is not falling into a double-dip,” said Sung Won Sohn, an economics professor at California State University in the Channel Islands. “This weakness, however, is a warning shot across the bow of the economy.”
The broadly weak report -confirmed a loss of economic momentum already flagged by other data from consumer spending to manufacturing.
The department said it found “no clear impact” on the jobs figures from the tornadoes and flooding in the US midwest and south.
The sharp slowdown in job creation accompanied signs of softening growth overseas and was troubling news for US President Barack Obama, whose chances of re-election next year could hinge on the health of the economy.
High gasoline costs hurt consumer spending in the first quarter, when economic growth was held to a 1.8 percent annual pace after expanding at a 3.1 percent rate at the end of last year.
Wal-Mart chief executive Mike Duke on Friday said the “paycheck cycle,” where people stock up around payday and then spend less as the month progresses and cash runs out, is more pronounced than it has ever been.
The employment data lent more fuel to talk about the need for the US Federal Reserve to extend its asset purchasing program when it expires this month, but officials at the central bank have set a high bar for any further monetary easing.
With the Obama administration and lawmakers discussing how best to trim US spending as they try strike a deal on raising the debt limit, the economy could be left to its own devices.
Ratings agency Moody’s on Thursday said it would consider cutting the nation’s credit rating if progress is not made by the middle of next month in talks to raise the US$14.3 trillion debt ceiling.
“One look at the jobs report should show the White House it’s time to get serious about cutting spending and healing our ailing economy,” US House of Representatives Speaker John Boehner said.
Treasury debt prices and interest rate futures rose, signaling that traders believe mounting signs of economic weakness will lead the US central bank to keep interest rates pressed to zero for a prolonged stretch.
A Reuters survey on Friday -predicted the Fed would leave interest rates on hold this year and most economists did not see an increase before the second half of next year.
“It pushes back expectations to when the Fed can start to re-normalize policy, probably well into 2012 before we see an increase in the Fed funds rate,” said Robert Dye, senior economist at PNC Financial Services in Pittsburgh.
Views the economy was not falling off the cliff were supported by a separate report showing growth in the country’s services sector picked up last month.
The Institute for Supply Management’s services sector index rose to 54.6 last month from 52.8 in April, with gains in employment and new orders.
The private sector, which has shouldered the burden of job creation, added just 83,000 jobs last month, the fewest since June last year, while government payrolls fell for a seventh straight month.
About 39,000 fewer jobs were created in March and April than previously estimated. Payrolls last month had been expected to rise 150,000, with private employment gaining 175,000.
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