Weak Jobs Report Raises Concerns for Economy

By:
Kara Johnson | June 04, 2010
A weaker-than-expected jobs report sent stocks tumbling this morning, despite an improvement in the unemployment rate. 
 
Although bad news for the economy in general, this morning’s news does suggest that mortgage interest rates will remain subdued for at least a while longer.
 
The Labor Department reported this morning that nonfarm payroll employment grew by 431,000 in May, largely due to 411,000 temporary government workers hired for the 2010 Census. Private employment grew by only 43,000.
 
The figures are considerably weaker than analysts expected, with various surveys projecting the total increase in the 500,000-700,000 range. The increase was enough to cut the unemployment rate to 9.7 percent in May, down from 9.9 percent the month before.
 
The Dow Jones average immediately fell by more than 150 points at opening, having begun the day at 10,250, then nearly fell below the 10,000 mark before rallying slightly by midday.
 
The weak employment figures raise concerns that private employment may not be growing fast enough to sustain an economic recovery, potentially pushing the economy into a “double dip” recession later this year. The 411,000 temporary Census workers will start being laid off again this month, and many of the government’s economic stimulus efforts will begin to wind down later this summer, meaning the recovery will need healthy growth in the private sector to keep going.
 
The lackluster employment figures come on the heels of other reports from the Commerce Department last week showing that consumer spending stalled out in April after five months of increases and that overall economic growth was somewhat less than originally believed in the first quarter of the year.
 
It’s difficult to say, however, if the current employment figures represent more trouble for the economy or is just a monthly blip in the data. Private employment has still risen every month since December, when it bottomed out at 107,107,000 following the recent downturn. It presently stands at 107,602,000 in the current report, a gain of less than 500,000 in five months.
 
This morning’s decline in the stock market boosted demand for Treasury bonds, which tends to drive down interest rates on mortgages and other loans. As long as demand for Treasuries remains high, interest rates on mortgages will likely remain subdued, absent signs of economic growth that signals investors they can get better returns for their money elsewhere.

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