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• Non-farm payrolls show job creation weak • New jobs 96,000 below predicted figure The White House admitted on Friday that unemployment in the US was “uncomfortably high” after the latest set of figures for the American labour market showed only 54,000 new jobs were created by the world’s biggest economy last month. Amid signs that growth has slowed markedly during the first half of 2011, the closely watched figures for non-farm payrolls showed an across-the-board weakening in hiring during May. The news led to an immediate sell-off in shares on Wall Street amid speculation that the Federal Reserve, the US central bank, would be forced into a third round of electronic money creation, known as quantitative easing, to bring down unemployment. The report from the US labour department was the weakest since last September. Private-sector jobs grew by 83,000, the smallest rise since June 2010, while government payrolls fell by 29,000. Employment growth in March and April was revised down by a total of 39,000, while the jobless rate rose in May from 9% to 9.1%. In the London, share prices shrugged off the poor US figures, bouncing back from an earlier decline prompted by a drop in the latest CIPS/Markit report on the UK service sector from 54.3 to 53.8 in May. Although the cut-off point of 50 separates expansion from contraction, economists said the survey was consistent with quarterly growth in services, which account for about three-quarters of UK national output, of about 0.3%. John Lewis fuelled concerns that the recovery is weakening after turnover at its stores fell at the end of May. Wall Street economists expected payrolls to rise 150,000 and private hiring to increase by 175,000 but had been revising down their estimates since the release of a downbeat survey of private sector employment earlier this week. The economy has regained only a fraction of more than 8m jobs lost during the recession and analysts believe payroll growth above 300,000 a month is needed to make significant progress in shrinking the pool of 13.9 million unemployed Americans. Austan Goolsbee, chairman of the Council of Economic Advisers, which advises the president, said of the non-farm payrolls: “There are always bumps on the road to recovery but the overall trajectory of the economy has improved dramatically over the past two years. “While the private sector has added more than 2.1m jobs over the past 15 months, the unemployment rate is unacceptably high and faster growth is needed to replace the jobs lost in the downturn. “The initiatives put in place by this administration – such as the payroll tax cut and business incentives for investment – have contributed to solid employment growth overall this year, but this report is a reminder of the challenges that remain. We will continue to work with Congress to responsibly reduce the deficit and live within our means.” The US labour department said last month’s tornadoes and flooding in the midwest and the south did not materially affect data collection. It said that while some workers in those areas may have been temporarily displaced from their jobs, it found “no clear impact of the disasters” on the employment data. Wall Street economists said supply chain problems for US industry after the Japanese earthquake had been a factor in the drop of 5,000 in manufacturing jobs. Paul Ashworth, chief US economist at Capital Economics, said: “It is now pretty clear that the economy ran into a brick wall last month. We probably will see growth rebound in the second half of the year, as commodity prices drop back and any Japan-related disruptions unwind. For that reason we don’t expect the Fed to act immediately. Nevertheless, the extent of this slowdown is becoming a big concern, particularly with a potentially big fiscal consolidation on the way and we wouldn’t rule out a QE3 either later this year or in early 2012.” James Knightley at ING said the figures were “undeniably weak” but saw reasons for optimism. “In terms of what is driving the weakness in the labour market we feel that the lagged effects of rising energy costs plays a major part,” he said. “This has hurt household spending power since they are spending more of their income on fuel and gasoline, leaving less money to spend on other goods and services. This is damaging businesses from the revenue side, while their costs too have been increasing because of higher fuel bills. Aidan Manktelow, of the Economist Intelligence Unit, said: “The job creation figure for May was very disappointing. It is clear now that the weak patch in the economy has fed into the labour market. We still think this is likely to be a temporary soft patch – the result of high oil prices, some disruption to the manufacturing sector related to Japan’s disasters, and firms being spooked by recent weak data. “In underlying structural terms the recovery is now further advanced than in 2010, and more positive sentiment could come back pretty quickly, for example as the recent fall in the oil price feeds through”. US unemployment and employment data US economy United States Financial crisis Global recession Larry Elliott guardian.co.uk