Jobless rate ticks up, adding to debate over debt, spending

WASHINGTON — Employers pulled back sharply on job creation in May, and the unemployment rate took a surprising jump, according to new data Friday, confirming worries that the economy is losing momentum — fast.

Employers added only 54,000 jobs in May, down from a revised 232,000 in April and the weakest since September, the Labor Department said Friday. The unemployment rate rose to 9.1 percent last month, from 9 percent.

The darkening jobs picture — the jobs number was the latest in a string of disappointing economic readings — paints a new backdrop for the debate over taxes, spending and deficits that has absorbed Congress for months.

The federal government is poised to hit a legal limit on debt in August, and President Obama and congressional Republicans are in a high-stakes contest to craft a deal to raise the debt ceiling so that the country does not default on its obligations. With the new unemployment numbers, job growth is certain to become another key element in the deficit debate.

Republicans on Friday blamed the weakening jobs picture on Obama's policies. House Speaker John Boehner, R-Ohio, said: "One look at the jobs report should be enough to show that the White House should get serious about cutting spending."

And with the presidential election 17 months away, GOP candidate and former Massachusetts Gov. Mitt Romney said: "Today's unemployment numbers show that we are going backward, and that is the wrong direction for America. President Obama's policies made the recession worse, and as a result, more people are out of work."

In a speech Friday to workers at a Chrysler plant in Toledo, Ohio, Obama made no mention of the latest jobs report but spoke optimistically about the economy while acknowledging the recovery remains fragile.

"Even though the economy's growing, even though it's created more than 2 million jobs over the past 15 months, we still face some tough times, we still face some challenges," he said. "This economy took a big hit. ... It's taking a while to mend."

Austan Goolsbee, chairman of the White House Council of Economic Advisers, said administration policies such as a payroll-tax cut and business-investment incentives "have contributed to solid employment growth overall this year, but this report is a reminder of the challenges that remain."

Local governments lost the most jobs, shedding 28,000 positions in May. Around the country, ailing state and local governments are cutting back on teachers and other public employees to try to balance their budgets. The biggest areas of job gains were in professional and business services, which added 44,000 jobs, and education and health care, which added 34,000.

The manufacturing sector lost 5,000 jobs, after solid gains in previous months, likely reflecting disruptions from the Japanese earthquake and tsunami. Retail employers cut 8,500 jobs, and the leisure and hospitality industry shed 6,000 jobs.

The grim numbers are the latest in a string of disappointing economic readings. Manufacturing is slowing, consumers are pulling back on spending, and the housing market remains stuck in a long decline, according to other data released this week.

Overall, the economic expansion is too sluggish to bring down unemployment to a sustainable level. The economy needs to add about 125,000 new jobs each month just to keep pace with an ever-growing population.

Friday did bring a positive sign: The service sector expanded faster in May than had been expected. The Institute for Supply Management said its index of activity at nonmanufacturing business rose to 54.6 in May, from 52.8 in April.

There were a few other bright spots in the May data. The unemployment rate rose primarily because more people — 272,000 of them — joined the labor force and began looking for a job. Average weekly pay increased 0.3 percent, as the length of the workweek and hourly pay rose.

A broader measure of unemployment that captures people who have given up looking for work out of frustration and part-time workers who want a full-time position dipped to 15.8 percent, from 15.9 percent.

Still, the strong gains in job creation over the previous months had seemed too good to be true. Other indicators, such as surveys of businesses and the numbers of people filing unemployment-insurance claims, suggested tepid growth. The May report may be a reflection of the underlying trend. The United States has added an average of 157,000 jobs a month in 2011, which is consistent with other evidence on the pace of job creation.

There is little question that the economic recovery has lost juice. Several leading economists had cut back their forecasts for 2011 growth in the past two weeks before the labor report was released.

The unemployment figures will heighten pressure on the Federal Reserve and other economic policymakers to find ways to inject vigor into the economy.

The Fed has kept its target interest rate near zero, but it has few tools left to help in any significant way besides announcing another round of large-scale purchases of Treasury bonds. The latest round of quantitative easing, the purchase of $600 billion in bonds is set to expire this month.

The Obama administration and Congress are also in a pickle; the usual methods for trying to strengthen the economy — tax cuts and new spending — would only raise the deficit.