Employers probably hired fewer workers in May, a sign U.S. businesses are losing confidence as the world's largest economy cools, economists said before a report today.

Payrolls rose by 165,000, the smallest gain in four months, after increasing 244,000 in April, according to the median of 89 estimates in a Bloomberg News survey. The jobless rate may have partially reversed April's advance, falling to 8.9 percent from 9 percent.

Companies may try to restrain labor costs amid concern consumer spending, which accounts for about 70 percent of the economy, will keep slowing as households grapple with rising food and fuel expenses. The recovery's failure to create more jobs raises the odds Federal Reserve policy makers will hold interest rates close to zero into next year.

“The economy has slowed, and employment has slowed as well,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. Policy makers will “continue emphasizing that they'll keep interest rates on hold for a very long time.”

The Labor Department's data are due at 8:30 a.m. in Washington. Bloomberg payroll survey estimates ranged from increases of 65,000 to 250,000.

Projections in the Bloomberg survey for the unemployment rate ranged from 8.7 percent to 9.1 percent.

In addition to companies, investors may be losing confidence in the speed of the economic expansion. The Standard & Poor's 500 Index has dropped 3.7 percent since the end of April.

Broad-Based Slowdown

Private payrolls, which exclude government positions, grew 175,000, according to the survey median. Manufacturing employment gains probably slowed to 10,000 after a 29,000 increase in April, the figures may show.

Manufacturing grew in May at the slowest pace in more than a year, according to Institute for Supply Management data this week, reinforcing concern the industry that led the U.S. recovery is cooling. Consumer spending grew less than forecast in April as households felt the pinch of grocery and energy costs, a Commerce Department report showed.

Economic growth slipped to a 1.8 percent annual pace in the first three months of the year from 3.1 percent in the prior quarter, revised figures from the Commerce Department showed last week.

Economists including Feroli said the wave of weak economic data may spur Fed policy makers to support growth by making it clear after their June meeting they're in no hurry to shrink the central bank's record balance sheet. The Fed's second $600 billion round of asset purchases ends this month, and it may keep reinvesting proceeds from maturing debt, they said. The Fed next meets June 21-22.

Yellen's View

“The current accommodative stance of U.S. monetary policy continues to be appropriate because the unemployment rate remains elevated and inflation is expected to remain subdued over the medium run,” Fed Vice Chairman Janet Yellen said in a Tokyo speech this week.

Companies still reducing their workforce include H.J. Heinz Co., the world's biggest ketchup maker, which in May announced plans to slash as many as 1,000 jobs worldwide and close five factories. Dean Foods Co., the largest U.S. milk processor, said it cut 600 positions last quarter and 140 early this quarter.

At the same time, jobs are being created as some businesses expand. General Electric Co.'s finance unit in May said it will add 1,000 people to its Chicago-area operations, mostly new hires, as commercial lending improves in the Americas. About 500 will be hired in 2012, with another 500 over the next several years, Fairfield, Connecticut-based GE said. The company also announced last month that it will open a locomotive plant employing more than 500 people in Fort Worth, Texas.

“Job creation remains the most important factor during the economic recovery, but we do anticipate that it's continuing to improve,” Don Johnson, vice president of U.S. sales at General Motors Co., said on a June 1 teleconference. “The environment for future hiring and investment does continue to be positive.”

Bloomberg News

Instant Insights /

Companies Slow Down on Hiring

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