Job Creation Slows To A Crawl

Where are all the jobs? That was a question heard on both Wall Street and Main Street today as the Labor Department reported the economy produced only 54,000 new jobs last month. Predictions had ranged from 100,000 to 200,000 based on growth in the previous months.

Economist Joel Naroff, of Naroff Economic Advisors, in Holland, Pa., says the high price of gasoline and other economic speed bumps appear to be putting a drag on hiring.

“Hiring came to a near halt with very few sectors posting payroll increases,” Naroff said. Manufacturing, which had been leading the way, cut workers. That is somewhat surprising since the Institute for Supply Management seemed to indicate firms were still adding workers at a decent pace.”

Retailers reduce hiring

Retailers retrenched as well and there was a sharp reduction in leisure and hospitality businesses, no doubt hard hit by the rising cost of gasoline. Adding to the job losses was the public sector, as governments which had been slow to react to the economic crisis cut jobs. Tight local government budgets have led to 125,000 positions being cut so far this year with 29,000 coming in May.

Despite the fact that the economy produced jobs last month, the unemployment rate actually went up, to 9.1 percent. While that isn't exactly good news, Naroff says it shows people are confident enough in the economy to go out and look for a job.

“Unfortunately, it is hard to find an opening and if you are already unemployed, it seems to be impossible,” Naroff said. “The number of people who are unemployed for over six months continues to surge.”

Positive sign

There was one other positive sign: wages rose solidly while hours worked increased.  Income gains should help offset the impact of the soft job creation.

Going forward, Naroff thinks gasoline prices will hold the key. If the average price falls below $3.50 a gallon, he thinks confidence and spending will rise, which will in turn encourage businesses to do more hiring.

The forecast for gas prices is mixed. Plenty of analysts have predicted oil will fall another $15 a barrel, which would bring gas prices to around $3 a gallon. On the other hand, two major investment banks, JPMorgan Chase and Goldman Sachs, have predicted much higher gas prices in the next few months.