U.S. Economy Loses Steam

Cautious employers added just 75,000 new jobs in May, the fewest in seven months, in a fresh sign that the national economy is losing momentum heading into summer.

Retail took the biggest hit, losing more than 27,000 jobs. One reason: customers are spending less because they're paying more for gas, reports CBS News correspondent Anthony Mason.

The other hammer to the economy came from the once-booming construction sector. It came to a standstill in May, adding only 1,000 jobs after new home building fell in April for the first time in almost two years, Mason adds.

Those factors, along with sagging consumer confidence, are making companies extra careful not to bulk up their payrolls in case the economy takes an unexpected turn for the worse, analysts said.

Taking a bit of the sting out of the sluggish job creation was the fact that the nation's unemployment rate dipped to 4.6 percent, the lowest in nearly 5 years.

Still, when the Labor Department's employment snapshot, released Friday, is viewed as a whole, it points to slower — not faster — economic speed ahead, analysts said. Wage growth also slowed, a development that isn't music to the ears of workers but comforted economists who worry about inflation taking off.

"The May employment report was weak in almost all dimensions," said Nigel Gault, economist at Global Insight.

Economic growth in the April-to-June quarter will probably clock in around a 2.5 percent pace or slightly better. That would mark a deceleration from the brisk 5.3 percent pace logged in the first quarter.

The count of new jobs generated last month was the smallest since October, when hiring practically stalled as the fallout from the Gulf Coast hurricanes jolted companies. It fell short of the 170,000 new jobs economists had predicted.

Manufacturers, retailers, home builders, trucking firms, hotels and motels were among those shedding jobs last month. Financial firms, health care providers, educational services, accountants and bookkeepers, architects and engineers, and computer designers all boosted employment.

Job growth, which has been steadily weakening since February, was lower in March and April than previously reported. Employers added 175,000 jobs in March and another 126,000 in April — 37,000 fewer positions for both months combined than estimated a month ago.

"Firms have grown more cautious of taking on additional workers," said Stuart Hoffman, chief economist at PNC Financial Services Group.

In a brighter note, though, the unemployment rate dropped a notch from 4.7 percent in April to 4.6 percent in May, the lowest since July 2001.

The payrolls figure and the unemployment rate come from two different statistical surveys, which can provide — as in Friday's case — a somewhat conflicting picture of what is happening in the labor market.

The seasonally adjusted overall civilian unemployment rate — 4.6 percent in May — is based on a survey of 60,000 households. It showed that 288,000 people said they found employment last month, outpacing the number of people who couldn't find work.

Economists tend to put more stock, however, in the much broader business survey of 400,000 work sites that is used to calculate the payroll figures.

The latest employment report gave both Republicans and Democrats ammunition during an election year.

President Bush, coping with low job-approval ratings, pointed to the 4.6 percent unemployment rate as evidence that "the American economy is powerful ... and it is prosperous and we intend to keep it that way."

Democrats homed in on workers' slower wage growth.

"This economy is know as the wageless recovery," said Rep. Rahm Emanuel, D-Ill. With gasoline and other prices rising, "America's middle-class families deserve better," he said.

Workers' average hourly earnings edged up by just 0.1 percent in May from the previous month to $16.62. Over the last 12 months, wages rose 3.7 percent, meaning paychecks are probably trailing inflation, said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.

To fend off inflation, Federal Reserve Chairman Ben Bernanke and his colleagues in May bumped up a key interest rate for the 16th time since June 2004. They said their future rate decisions would rely heavily on what incoming barometers say about economic activity and inflation.

Some economists said the employment report boosts the odds that the Fed will leave rates alone at its next meeting, June 28-29. Others, however, still predict another rate increase. A government report on consumer prices, a closely watched inflation gauge to be issued on June 14, will be an important piece of the Fed decision-making puzzle.

Oil prices, which hit a record high of more than $75 a barrel in late April, are now hovering above $71 a barrel. Gasoline prices have topped $3 a gallon in some areas.

The Fed is in a tricky spot. It wants to make sure energy prices don't spark broad inflation and it also doesn't want its rate increases to crimp economic activity too much.

Adding to signs that the economy was shifting into a lower gear: The Commerce Department reported that orders placed with U.S. factories fell 1.8 percent in April, the biggest setback in three months.