By Shobhana Chandra June 5 (Bloomberg) -- Employment by American companies rose less than forecast in May and workers dropped out of the labor force, signaling the world’s largest economy is still reliant on government assistance to boost growth. Private payrolls rose by 41,000, Labor Department figures showed yesterday in Washington, trailing the 180,000 gain forecast by economists in a Bloomberg News survey. Including government workers, employment rose by 431,000, boosted by a jump in hiring of temporary census workers. The jobless rate fell to 9.7 percent from 9.9 percent. “Hiring just can’t gather momentum right now,” said David Semmens, an economist at Standard Chartered Bank in New York, whose forecast of a 30,000 gain in private payrolls was closest among survey participants. “This recovery will continue to disappoint through 2010.” Stocks fell and Treasuries surged yesterday as the report raised concern the economy was susceptible to shocks such as the European debt crisis. The figures may deal a blow to the Obama administration as the Congressional elections approach, and bolster forecasts the Federal Reserve will keep its pledge to hold interest rates low for “an extended period.” Estimates of 82 economists surveyed by Bloomberg for total payrolls ranged from 220,000 to 750,000. Last month’s gain followed a 290,000 increase in April employment. Economists also forecast the jobless rate would fall 9.8 percent. Unemployment reached a 26-year high of 10.1 percent in October. The decline in joblessness last month reflected a 322,000 drop in the labor force as Americans grew discouraged over hiring prospects. Delayed ‘Handoff’ “The handoff from the public sector to the private sector isn’t happening at the pace that many people would have expected by now,” John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said yesterday in an interview on Bloomberg Television. “We have an improving economy, but it isn’t improving as fast” as projected. Smaller job gains mean “continued pressure on the American consumer,” he said. The Standard & Poor’s 500 Index dropped 3.4 percent yesterday to close at 1,064.88, the lowest level since Feb. 8. The 10-year Treasury note rose, pushing the yield down to 3.20 percent at 4.54 p.m. in New York from 3.37 percent late the prior day. Temporary census jobs accounted for 411,000 of the May increase in payrolls, leaving the ex-census figure at 20,000. The hiring of temporary workers to conduct the decennial population count probably peaked last month, economists said. Temporary Workers The unwinding of census employment may keep distorting the payroll figures for months as the government dismisses workers when the count is completed. For that reason, economists say private payrolls, which exclude government jobs, will be a better gauge of the state of the labor market for much of 2010. About 150,000 to 200,000 jobs are needed to trim the unemployment rate, which is “a key focus for the administration,” said Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co. in Newport Beach, California. “Job growth is going to be anemic,” he said in an interview yesterday with Bloomberg Radio’s Tom Keene on “Bloomberg on the Economy.” President Barack Obama said the employment report showed the economy was moving in the right direction. “Our recovery is still in its early stages,” the president said while visiting a truck factory in Hyattsville, Maryland, yesterday. Factory Gains Manufacturing remained a bright spot as factories increased payrolls by 29,000 in May, a fifth straight gain. The average number of hours worked, overtime, and earnings also climbed. Fed Chairman Ben S. Bernanke this week said joblessness is among the “important concerns” for the recovery. “One particularly difficult issue is the continued high rate of unemployment,” Bernanke said at a forum at the Chicago Fed’s Detroit office. “High unemployment imposes heavy costs on workers and their families, as well as on our society.” Hewlett-Packard Co., the world’s largest personal-computer maker based in Palo Alto, California, this week said it’ll slash about 3,000 jobs over several years. Not all the data was bleak. Earnings per hour for those with jobs climbed 0.3 percent on average to $22.57 last month. Pay rose 1.9 percent from May 2009, up from a 1.8 percent increase in the year to April. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- decreased to 16.6 percent from 17.1 percent. The number of temporary workers increased 31,000, an eighth consecutive gain. Employment at temporary-help agencies often picks up before companies take on permanent staff. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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