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Unemployment Rate in May Drops to 9.7%

Last Updated 9:59 a.m. ET

U.S. hiring grew in May, boosted by a phalanx of census workers, to bring down the unemployment rate to 9.7% - the same rate it was in the first three months of 2010. But private payrolls grew at the slowest pace since the start of the year.

President Obama cited the 431,000 new job hires in May as evidence that the economy is "getting stronger," despite the fact that the majority of jobs - 411,000 - were for temporary census workers.

Such hiring peaked in May and will begin tailing off in June.

By contrast, the Bureau of Labor Statistics reported today, hiring by private employers (including manufacturing, temporary help services and mining) slowed sharply.

May Jobs: A Terrible Report

They added just 41,000 jobs, down from 218,000 in April and the fewest since January. Construction employment declined.

Economists had forecast that employers would add 513,000 jobs in May.

"Although the economic outlook is improving, the recovery is still pretty tepid," said Paul Ashworth, senior U.S. economist at Capital Economics.

The unemployment rate, which is derived from a separate survey than the payroll figures, fell to 9.7 percent from 9.9 percent. The dip partly reflected 322,000 people leaving the labor force for a variety of reasons.

All told, 15 million people were unemployed in May.

Speaking at a trucking company outside Washington this morning, Mr. Obama embraced the Labor Department's new employment snapshot. He noted that the economy has seen job gains for five straight months after devastating losses from the recession.

He said the recovery is still in its early stages, and that it will be uneven in the months ahead.

Writing on the White House's website, economic adviser Christina Romer said that today's numbers show continued signs of labor market recovery, and noted the number of people working part-time for economic reasons declined.

"While these are encouraging developments, we clearly have a very long way to go until the labor market is fully recovered. It is essential that we continue our efforts to move in the right direction and generate steady, strong job gains and continuing declines in unemployment."

Romer said the continued high level of unemployment and the slowdown in private sector job growth emphasize the need for continuing vigilance, and promoted the Obama administration's efforts to booster job creation in the private sector, including tax incentives for clean energy manufacturing and energy efficiency, funding to encourage small business lending, and fiscal relief for state and local governments.

Republican National Committee Chairman Michael Steele criticized the new numbers as being "greatly inflated" by the hiring of workers for Census 2010, saying those jobs will disappear once the census is complete.

He also decried the president's "high-spending, big-government agenda," claiming it prevents the private sector from creating jobs.

The weakness in private hiring rattled Wall Street before the market opened. Stock futures tumbled and bond prices rose, as investors sought the safety of U.S. Treasurys.

Counting people who have given up looking for work and part-timers who would rather be working full time, the "underemployment" rate fell to 16.6 percent in May from 17.1 percent in April. That reflected fewer people forced into part-time work. Still, the high underemployment figure shows how difficult it is for jobseekers to find work.

The number of people out of work six months or longer reached 6.76 million in May, a new high. They made up 46 percent of all unemployed people, also a record high.

(Dept. of Labor)
Employers across a range of industries last month added jobs at a slower pace - or cut them. Factories, professional and business services, leisure and hospitality companies, and education and health care firms all slowed hiring. Financial services, construction companies and retailers all pared jobs. Government, however, led the way in hiring, adding a whopping 390,000 positions last month.

Job gains in April were the same as first reported, while payrolls in March were slightly less - 208,000 versus 230,000.

The prospect of persistently high unemployment is likely to prevent consumers from going on the kinds of shopping sprees they typically do during early phases of recoveries. That's a key reason why this recovery isn't as energetic as those usually seen in the past.

Workers did see wages rise modestly last month.

Nationwide, average hourly earnings rose to $22.57, from $22.50 in April. However, inflation was nibbling into paychecks. Over the past 12 months, wages rose 1.9 percent, while inflation was up 2.2 percent.

The unemployment rate in October hit 10.1 percent, a 26-year high. Some analysts think it could go a bit higher and peak at 10.2 or 10.4 percent by June. However, that's lower than some forecasts earlier this year of 11 percent.

About 125,000 new jobs are needed each month just to keep up with population growth and prevent the unemployment rate from rising.

Hiring isn't expected to be consistently strong enough to quickly drive down the unemployment rate this year. Economists think the rate will remain above 9 percent by the November midterm elections. That could make Democratic and Republican incumbents in Congress vulnerable.

Only 20 percent of Americans consider the economy in good condition, according to an Associated Press-GfK Poll conducted in mid-May.

Chrysler LLC said and Ford Motor Co. last month announced plans to hire as auto sales have risen. But others are still laying off workers. Hewlett-Packard Co. said this week it is cutting 9,000 jobs in its technology services division. And chocolate-maker Hershey Co. may cut 600 jobs.