New jobs far below May forecasts

Commerce chief upbeat in Md. visit

June 03, 2006|By ALLISON CONNOLLY | ALLISON CONNOLLY,SUN REPORTER

The economy showed signs of a slowdown in May, creating less than half the number of new jobs analysts expected, the Labor Department reported yesterday. Higher energy prices caused a weakness in manufacturing, retail and service sectors, economists said, and slower housing sales hurt construction.

Yet U.S. Commerce Secretary Carlos Gutierrez remained upbeat yesterday, choosing the Allison Transmission plant in White Marsh to promote the nation's economic might.

General Motors Corp. is investing $118 million and adding 87 jobs to build fuel-efficient hybrid transmissions.

"We are going to lead the world economy for the next century," Gutierrez told workers. "People like you are going to make that happen."

The Labor Department said employers added just 75,000 jobs to their payrolls in May, sharply below the 170,000 economists had expected.

Further casting a pall on job growth, the department cut the number of jobs created in the previous two months by 37,000.

The average hourly wage for production workers gained just 1 cent to $16.62.

In one ambiguously bright spot, the unemployment rate fell from 4.7 percent to 4.6 percent, its lowest since May 2001, just as the last recession was beginning. But analysts said the drop reflected a diminished labor force as some Americans quit looking for work.

The job creation and unemployment rates can move in different directions because they are based on two different surveys. Job growth was determined by a survey of 400,000 employers, and economists tend to view it as a more reliable labor indicator than the unemployment survey, which was based on phone calls to 60,000 households.

"It was unequivocally a disappointing report," said economist Sophia Koropeckyj of Economy.com

About 10,000 of the 14,000 manufacturing jobs lost during the month were at automakers GM and Ford Motor Co., which are undergoing major restructuring, Koropeckyj said. The sector is also being squeezed by higher energy costs and higher prices for raw materials such as aluminum and steel, she said. The cost pressures are exacerbated by increased competition from overseas, she said.

To most analysts, the only positive aspect was that the weak job creation could prompt the Fed's policymaking arm, the Federal Open Market Committee, to stop its two-year push to raise interest rates.

It has lifted rates in quarter-point increments, from 1 percent to 5 percent, in 16 straight meetings. The next FOMC meeting is June 28-29.

"The well-below-par 75,000 increase in payroll employment suggests a slowing economy and will raise hopes that the Fed can stop raising rates soon," said Nigel Gault, U.S. economist for Global Insight. "The door is now open to a pause on June 29," he said, as long as subsequent* reports don't show that inflation is gaining.

Peter Morici, an economics professor at the Robert H. Smith School of Business at the University of Maryland and former chief economist at the International Trade Commission, said that higher energy prices were beginning to bite. "When we pay a dollar more a gallon for gasoline, demand for services in the U.S. goes down," he said.

Gutierrez said the economy had such a strong first quarter, growing 5.3 percent, that it should stay on track to show a 3.5 percent average growth rate for the year, despite unrelenting energy costs.

Dressed in a gray suit and blue tie, Gutierrez toured the Allison plant and asked questions about how the transmissions are manufactured and how the hybrid design will save fuel using a combination of gasoline and electricity.

"The vehicle is never plugged into an outlet," said Ron Vasold, launch manager for the two-mode rear-wheel drive hybrid transmission, which will go into production next fall and should improve fuel economy by 25 percent. The six-year-old plant currently employs 440 hourly and salary workers and manufactures six-speed transmissions.

Plant managers explained to Gutierrez how technology has automated much of the process. He watched as workers guided machines that assembled the transmissions.

Before the tour, Gutierrez spoke with a group of area business leaders and members of the Baltimore County Chamber of Commerce and pointed out that Maryland's rate of unemployment, 3.5 percent, is much lower than the nation's.

"You're doing all the right things to increase jobs and increase prosperity in the state," he told business leaders.

allison.connolly@baltsun.com

The Associated Press and Los Angeles Times contributed to this article.

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