Slower U.S. Job Losses Signal Recession Is Starting to Ease

June 6 (Bloomberg) -- Employers eliminated the fewest jobs in eight months in May, strengthening signs that the recession is easing, while a drop in wage growth offered a warning the recovery may be muted.

Payrolls fell by 345,000, less than forecast, while the unemployment rate hit a 25-year high of 9.4 percent, partly because more people joined the workforce to look for jobs, Labor Department figures showed. The annual rate of average hourly earnings growth touched its lowest since November 2005.

“The rate of decline has slowed some, but the losses to date are causing sharp declines in U.S. per capita income,” David Malpass, an economist and president of Encima Global in New York, wrote in a note to clients. Malpass predicted a “slow recovery” from the deepest recession in half a century.

Some investors focused on the report’s relief from payroll losses that surpassed half a million in each of the previous six months. The dollar rallied, Treasury yields rose and some traders added to bets the Federal Reserve will raise interest rates this year. The head of the panel that dates U.S. recessions warned it’s still “too early” to call an end to the slump.

Americans are spending less and saving more as home values fall and companies from American Express Co. to General Motors Corp. continue to cut workforces.

Credit Drops

Another report showed consumer borrowing dropped by $15.7 billion in April, the second-biggest decline on record, as loans remained difficult to get. Consumer credit fell at a 7.4 percent annual rate to $2.52 trillion, the Fed reported yesterday in Washington.

Yields on benchmark 10-year U.S. notes jumped to 3.83 percent in New York yesterday from 3.71 percent June 4, and the dollar climbed to a four-week high against the yen. The Standard & Poor’s 500 Stock Index slipped 0.3 percent to 940.09 after rising as much as 1 percent earlier.

Stocks initially rallied, then slid on concern that the Labor Department had overstated the slowdown in job losses. They recouped losses later when Labor Secretary Hilda Solis said the report was accurate. Labor’s estimate of net jobs created by the formation of new companies and demise of established firms, known as the birth/death model, had fed the confusion.

Revisions added 82,000 to payroll figures previously reported for April and March, the Labor report said.

Fed Rate

Some traders for the first time in months began to price in expectations that the Fed will raise interest rates this year as the economy improves.

Federal-funds futures contracts on the Chicago Board of Trade show a 59 percent probability the central bank will lift its target rate for overnight bank borrowing to at least 0.5 percent by November. The odds were 27 percent a day earlier.

While the economy is showing signs of stabilizing, it’s “way too early” to say the contraction is over, said Robert Hall, who heads the National Bureau of Economic Research’s Business Cycle Dating Committee, the group that officially makes the call.

Payrolls were forecast to drop 520,000, according to the median of 76 economists surveyed by Bloomberg News. Estimates ranged from declines of 450,000 to 600,000. Job losses peaked at 741,000 in January, the most since 1949.

The jobless rate was projected to jump to 9.2 percent, with forecasts ranging from 9 percent to 9.4 percent.

6 Million

The world’s largest economy has lost 6 million jobs since the recession began in December 2007, exacerbating the biggest drop in any post-World War II economic downturn.

The U.S. may suffer additional “sizable” job losses, Fed Chairman Ben S. Bernanke said this week in testimony to lawmakers. While economic growth will return “later this year,” he said, unemployment will rise “into next year.”

“We are starting to see indications of economic progress as the recovery package begins to take hold,” Representative Carolyn Maloney, a New York Democrat who chairs the congressional Joint Economic Committee, said in a statement. Rising unemployment “is a sobering reminder that we still have a long way” to go, she added.

Including those who’ve stopped looking for work because they are discouraged by employment prospects and those working only part-time who prefer a full-time job, the jobless rate would’ve jumped to 16.4 percent in May, the highest level since comparable records began in 1994, from 15.8 percent in April.

Factory payrolls fell by 156,000. Economists forecast a drop of 150,000. The decline included a drop of 29,800 jobs in auto manufacturing and parts industries.

GM Bankruptcy

The bankruptcies of General Motors and Chrysler LLC may generate more job losses. AutoNation Inc., the largest U.S. new- vehicle retailer, plans to close seven showrooms, while Visteon Corp., the former parts-making unit of Ford Motor Co., and chassis manufacturer Metaldyne Corp. also filed for bankruptcy.

Builders cut 59,000 jobs and financial firms cut 30,000. Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 120,000 workers. Retail payrolls decreased by 17,500. Government payrolls fell by 7,000 after rising 92,000 in the prior month.

Some companies are looking to grow. Wal-Mart Stores Inc., the largest U.S. private employer, plans to add more than 22,000 jobs for the 142 to 157 outlets it may open or expand in the 12 months through Jan. 31.

Rising unemployment and record wealth destruction mean consumer spending may not sustain the gains reported in the first quarter. Purchases fell in April as Americans boosted the savings rate to a 14-year high. Department stores Macy’s Inc. and Dillard’s Inc. and luxury chain Saks Inc. reported steeper- than-forecast sales declines for May.

‘Fear’ Factor

“Fear drives conservatism in consumer spending, and the biggest fear now is about losing jobs,” Eric Wiseman, chief executive officer of VF Corp., the world’s largest clothing maker, said in an interview in May.

American Express, the largest U.S. credit-card company by purchases, will cut 4,000 positions as cardholders squeezed by job losses fail to pay debts.

The average work week shrank, while hourly earnings were 3.1 percent higher than May 2008, the smallest gain since November 2005.