May jobs report: Hiring slows, unemployment rises

Businesses hired far fewer workers than expected in May, throwing into doubt the strength of the economic recovery.

Only 69,000 jobs were added last month, the weakest growth in a year. The unemployment rate rose to 8.2 percent, as people rejoined the labor force.

Economists surveyed by CNNMoney had expected to see employers add 150,000 jobs and the unemployment rate to remain at 8.1 percent.

Revisions from previous months also showed the economy gained 49,000 fewer jobs in March and April than originally thought.

Private companies sharply cut back on hiring last month, adding only a meager 82,000 jobs. Employment increased in health care, transportation and wholesale trade, but declined in construction. It was little changed in most other major industries.

The public sector continued to shed jobs, losing 13,000 in May.

The overall figure stunned most economists, who laid the blame for the slow growth at the feet of Europe and Washington D.C. The steady drumbeat of headlines concerning Europe's financial woes, as well as the looming fiscal cliff in the U.S., is weighing on consumer confidence. Adding to the problems is the slowdown in the Chinese economy.

"It was really shockingly low," said Bill Dunkelberg, chief economist for the National Federation of Independent Business, who said small businesses have pulled back from hiring because they aren't getting more customers.

The rising unemployment rate contained a glimmer of good news. It increased because 642,000 people re-entered the labor force, often a sign of economic optimism.

The report marks a major turnaround from the beginning of the year. Job growth started off strong in the first two months of 2012, thanks in part to warmer weather that boosted hiring in construction and some other industries.

But it now seems clear that the economy is not strong enough to sustain monthly job growth that exceeds 200,000, economists said. Gross domestic product, the broadest measure of the nation's economic health, grew at an annual rate of 1.9 percent in the first quarter, significantly slower than the 3% growth rate at the end of last year.

As a result, employers don't feel the need to boost their payrolls.

"It's not like businesses are being swamped with demands for goods and services," said Sean Snaith, an economist with the University of Central Florida.

At the same time, companies are being very cautious because of the events in the U.S. and abroad. That isn't likely to change anytime soon, especially with the U.S. presidential election looming in November.

"Whenever uncertainty abounds, it's hard to open the floodgates on hiring," said Ellen Zentner, senior economist at Nomura Securities. "I would expect to see anemic hiring persist over the next few months."

But the overall job market still has a long way to go to climb out of the deep hole left by the financial crisis. Of the 8.8 million jobs lost, only about 3.8 million have been added back.

Roughly 12.7 million Americans remain unemployed, and 42.8 percent of them have been so for six months or more. The number of long-term unemployed rose to 5.4 million, up from 5.1 million.