Unemployment in U.S. Probably Surpassed 9% in May (Update1)
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By Shobhana Chandra
May 31 (Bloomberg) -- Unemployment in the U.S. probably surpassed 9 percent in May for the first time in more than 25 years, underscoring forecasts that the economy will be slow to pull out of the worst recession in half a century, economists said before a report this week.
The jobless rate climbed to 9.2 percent, the highest level since September 1983, according to the median of 59 estimates in a Bloomberg News survey before the June 5 Labor Department report. Other data may show manufacturing and service industries shrank at a slower pace and consumer spending dropped.
“The economy is decaying at a slower rate and that is the best you can say,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. “I can’t tell you we are out of the woods yet.”
Economists forecast the jobless rate will head to almost 10 percent by the end of the year, depriving Americans of the income needed to propel spending and stoke a vigorous recovery. Access to credit will likely also be limited as record defaults and foreclosures make banks reluctant to lend.
The unemployment rate is predicted to rise from 8.9 percent in April. Payrolls probably fell by 521,000 this month after declining by 539,000 in April, the median of 60 estimates showed. Job losses peaked at 741,000 in January, the most since 1949.
The economy has lost 5.7 million jobs since the recession began in December 2007, the most of any economic slump in the post-World War II era.
Auto Slump
Restructuring at automakers including General Motors Corp. and Chrysler LLC may generate more job losses. AutoNation Inc., the largest U.S. new-vehicle retailer, has said it will close seven showrooms in line with bankrupt Chrysler’s termination of 789 dealerships.
Economists project the Labor report will show manufacturers cut payrolls by 150,000 in May, after slashing them by 149,000 in April.
Workforce reductions aren’t limited to the auto industry. American Express Co., the largest U.S. credit-card company by purchases, said on May 18 it will cut 4,000 positions as cardholders squeezed by rising unemployment fail to pay debts.
The chief executive officers of Caterpillar Inc. and Xerox Corp. said hiring at their companies probably won’t pick up until markets and the economy show more signs of stability.
Reducing Employment
“We have had to continue reducing employment,” Caterpillar CEO Jim Owens said today on NBC’s “Meet the Press” program. “We will probably not be able, in a position to, rehire until mid next year as we see these markets begin to recover.”
Xerox’s Anne Mulcahy said that “if you look at net head count it’s still coming down, because that’s what our intent is, until we’re sure that things are improving.” She said “we’re hiring, but very modestly.”
Consumer spending has taken a turn for the worse after improving in the first quarter. Purchases fell in April for a second month, and incomes declined for the sixth time in the last seven months, economists project a Commerce Department report tomorrow will show.
Household purchases rose at a 1.5 percent annual rate from January to March, less than previously estimated, after plunging at a 4.3 percent annual rate in the last three months of 2008, revised figures from Commerce last week showed.
Gross domestic product shrank at a 5.7 percent pace in the first quarter, less than the government previously estimated in April, the figures also showed. Following the 6.3 percent pace of decline in the last three months of 2008, the drop capped the worst six-month performance in five decades.
Factory Index
Also tomorrow, a report may show manufacturing shrank this month at a slower pace. The Institute for Supply Management’s factory index rose to 42 in May from 40.1 in April, according to the median estimate of 63 economists. Readings of the index of less than 50 signal a contraction.
Underscoring the improvement at manufacturers, orders placed with factories probably rose 0.8 percent in April, the second gain this year, economists predicted ahead of a Commerce Department report June 3.
An ISM report the same day may show service industries, which make up almost 90 percent of the economy, are also stabilizing. The Tempe, Arizona-based group’s gauge of non- manufacturing businesses probably increased to 45 in May from 43.7 the prior month, according to the Bloomberg survey.
Stock Surge
Stocks have surged and Treasuries have dropped amid reports showing the worst of the downturn may have passed. The Standard & Poor’s 500 Index has gained 36 percent since March 9, when it hit the lowest level in more than 12 years, closing at 919.14 on May 29. Yields on the benchmark 10-year note climbed to 3.74 percent last week from 2.86 percent during that period.
In other reports this week, the National Association of Realtors may report on June 2 that the number of Americans who signed contracts to buy previously owned homes rose in April for the third straight month as buyers took advantage of lower prices, according to the Bloomberg survey median.
Bloomberg Survey
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Release Period Prior Median
Indicator Date Value Forecast
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Pers Inc MOM% 6/1 April -0.3% -0.2%
Pers Spend MOM% 6/1 April -0.2% -0.2%
Construct Spending MOM% 6/1 April 0.3% -1.5%
ISM Manu Index 6/1 May 40.1 42.0
ISM Prices Index 6/1 May 32.0 35.0
Pending Homes MOM% 6/2 April 3.2% 0.5%
ADP Payroll ,000’s 6/3 May -491 -533
ISM NonManu Index 6/3 May 43.7 45.0
Factory Orders MOM% 6/3 April -0.9% 0.8%
Productivity QOQ% 6/4 1Q 0.8% 1.2%
Labor Costs QOQ% 6/4 1Q F 3.3% 2.9%
Initial Claims ,000’s 6/4 30-May 623 620
Cont. Claims ,000’s 6/4 23-May 6788 6855
Nonfarm Payrolls ,000’s 6/5 May -539 -521
Unemploy Rate % 6/5 May 8.9% 9.2%
Manu Payrolls ,000’s 6/5 May -149 -150
Hourly Earnings MOM% 6/5 May 0.1% 0.1%
Hourly Earnings YOY% 6/5 May 3.2% 3.1%
Avg Weekly Hours 6/5 May 33.2 33.2
Cons. Credit $ Blns 6/5 April -11.1 -6.0
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To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
