Economic outlook dims as jobs increase by just 69,000 in May

WASHINGTON — The U.S. jobs engine sputtered for the third straight spring, raising the stakes in the presidential election and auguring grim consequences for millions of workers and a world economy already grappling with Europe’s woes and a weakening in China.

The May employment report — showing the unemployment rate rising to 8.2% and a third straight month of faltering job growth — prompted analysts to lower their forecasts for hiring for the rest of this year.

It also increased pressure on the Federal Reserve to take new steps to spur economic activity.

“It feels like the last straw,” said Julian Jessop, chief global economist at Capital Economics in London. “Here is the economy that’s supposed to be doing relatively well, and it’s barely growing any jobs and unemployment is rising again.... The outlook is even gloomier than we thought.”

Friday’s Labor Department report pummeled stocks on both sides of the Atlantic and sent U.S. Treasury yields to an all-time low in a flight to safety.

The employment statistics for May were poor almost across the board. Construction, government and leisure payrolls sagged in particular, and workers’ average hours dropped. Overall, employers added 69,000 jobs — half the number analysts expected and the slowest job growth in a year.

The dismal report was an ominous development for President Obama, whose race with Republican Mitt Romney has been locked for weeks in something close to a dead heat. It emphasized how much both candidates are dependent on economic forces over which they have little control.

Obama had started off this year with a big lift from an acceleration in job growth. From December to February, the economy added about 250,000 jobs each month. But job creation in the last three months has fallen to just 96,000 a month on average, according to Friday’s new data and revisions.

Obama’s campaign has been heavily dependent on a feeling by many voters that the economy, while not yet good, was at least getting better. If that measured optimism is replaced by renewed pessimism, Romney would gain substantial strength.

Speaking to an audience at a Honeywell factory in the Minneapolis area, Obama said the American economy was facing “serious head winds,” such as the Eurozone debt crisis. But he also repeated his reminder of how bad the economy was when he took office.

“We knew it would take time,” the president said of the recovery. “We knew there would be ups and downs along the way.”

Romney called the latest news a “harsh indictment” of Obama’s presidency.

“Their policies have made it harder for the economy to recover,” he said in an interview on CNBC.

The sharp deceleration in job growth partly reflects an artificial boost in payrolls during the winter because of unseasonably warm weather. The May jobless rate ticked up from 8.1% in April, after steadily declining since last August when the unemployment figure was 9.1%.

Many more people entered the labor force last month, but the number of unemployed rose by 220,000 as technology firms, among others, recently have stepped up layoffs.

“I was working my butt off before I was let go,” said Jim Kopriva, 22, who was laid off May 15 from a small nutrition company in St. Louis.

The Indiana University graduate earned $34,000 doing Internet marketing, but he said the business eliminated his job as it turned instead to what he described as “product optimization” on the Web.

“It was like they yanked the tablecloth right from under me,” Kopriva said, fretting about how he would make his $250-a-month payment on student loans. “I also just bought a new car. Bad time to make a new purchase, I guess.”

Since the official start of the recovery three years ago, the economy has advanced in fits and starts. It has slowed sharply in each of the last two years around springtime amid domestic political troubles and global shocks such as Europe’s debts and the Arab spring.

“Truth be told, we thought we’d begin to see some firming in today’s report,” said Phil Orlando, chief equity strategist at Federated Investors. “For this number to come in at 69,000 was an absolute disaster.”

If there’s a silver lining in the spate of bad global economic news lately, he said, it’s that energy prices have fallen and consumer prices in general have flattened, giving some relief to consumers. The latest news adds to the likelihood that the Fed will take new action to stimulate the economy.

Some analysts said the Fed could announce another round of large-scale bond-buying as early as June 19 or 20, its next scheduled policy meeting.

The action would likely be similar to two previous efforts aimed at pushing down long-term interest rates and spurring lending and investments.

Experts aren’t sure how much it would help, given that rates already are so low, but some said it could give a boost to the housing market, which is starting to stir to life.

“There is still a logjam in the mortgage financing and refinancing market,” said Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi in New York. “Labor-market prospects are bleak and are likely to get bleaker. This raises the stakes for [ChairmanBen] Bernankeand the Fed to take additional steps to jump-start growth.”

Other economists and policy analysts said that in light of Friday’s jobs report, more fiscal spending was needed to support the economy. But with Congress gridlocked, nobody was holding out much hope that would happen, especially in an election year.

“I don’t see leopards changing their spots on this issue quickly, regardless of the external conditions,” said Jared Bernstein, former chief economist to Vice President Joe Biden.

In May, healthcare and social assistance positions accounted for about half of the 69,000 net new jobs.

But the construction sector lost 28,000 jobs last month, its worst month in two years, and amusement, gaming and other entertainment businesses cut 17,000 jobs from their payrolls. In a sign that public-sector cutbacks aren’t over, government offices at all levels trimmed jobs last month.

Job growth in manufacturing, which has been a bright spot in the recovery, slowed to 12,000 after adding on average 42,000 jobs a month in the first quarter.

Hiring stalled at businesses and professional services, a broad category that includes many well-paying occupations such as lawyers and computer programmers.

Tuesday was Sally Lee’s last day as a program manager for a software firm in Orange County. The 39-year-old Irvine resident had been with the company for 2 1/2 years, but after making it through an earlier round of layoffs at the firm, she didn’t survive the latest one.

Lee said her employer, a multinational firm, cited “budget reasons” for eliminating her position, but she suspects that the allure of cheaper wages in software outsourcing locations such as India may have had some influence in the cutbacks.

“Short of being a cop or a fireman, you have to figure out what you can do where people outside the U.S. can’t do it,” she said.

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Times staff writer David Lauter in Washington contributed to this report.