The failure of big-government socialism
Fewest jobs created since September 2010, dimming prospects for Fed interest-rate increase this month
WASHINGTON—U.S. companies hired at the slowest pace in more than five years in May, clouding the outlook for Federal Reserve officials as they prepare to debate increasing short-term interest rates at a policy meeting this month.
Nonfarm payrolls rose by a seasonally adjusted 38,000 in May, the weakest performance since September 2010, the Labor Department said Friday. Revisions showed employers added a combined 59,000 fewer jobs in April and March than previously estimated.
The unemployment rate, which is obtained from a separate survey of U.S. households, fell to 4.7% in May from 5.0% in April as fewer people looked for work. Economists surveyed by The Wall Street Journal had predicted payrolls would rise by 158,000 and the unemployment rate would hold steady.
May’s weak job growth and the revisions bring the average monthly job gains in the past three months to 116,000, a sharp slowdown from the average 219,000 growth over the prior 12 months.
“This was an unqualified dud of a jobs report,” said Curt Long, chief economist at the National Association of Federal Credit Unions, noting “the unemployment rate fell, but for the wrong reason as labor force participation declined for the second consecutive month.” The share of Americans participating in the labor force fell to 62.6% in May, down 0.2 percentage point from April.
One bright spot in the report was wage growth. Average hourly earnings of private-sector workers rose by 5 cents or 0.2% to $25.59. From a year earlier, hourly wages have risen by 2.5%, higher than the 2.1% average during the roughly seven-year expansion.
Still, the report indicated a softening of the labor market and a potential weakening of the domestic outlook despite a series of positive indicators like higher consumer spending in recent weeks.
May’s weaker-than-expected report is the last major gauge of job-market health before the Fed’s June 14-15 meeting. It leaves Fed policy makers with a difficult decision regarding the strength of the domestic economy as officials debate whether to increase borrowing costs for the first time in half a year, and only the second time in a decade.
Friday’s data knocked down expectations for a Fed interest-rate increase at this month’s meeting. Investors on Friday saw roughly a 3.8% chance that the Fed would raise rates in June, down from nearly 21% a day earlier, according to fed-fund futures tracked by CME Group.
Fed Chairwoman Janet Yellen said late last month that an increase in short-term interest rates would be appropriate “probably in the coming months” if the economy continues its upward trajectory. The strength of the labor market plays an important role in the Fed’s decision, alongside inflation and economic growth.
Gauges of consumer sentiment, which are crucial in an economy where consumer spending accounts for about two-thirds of output, have sent mixed signals in recent weeks.
The Conference Board’s consumer-confidence index fell to its lowest level in six months in May. A separate measure of U.S. household optimism, however, rebounded in May. The University of Michigan said last week its consumer-sentiment index was 94.7 in May, an 11-month high and up sharply from an April reading of 89.
U.S. auto sales shifted downward in May, largely due to fewer selling days in the month, but some prominent dealers have voiced concerns about underlying demand despite low interest rates and cheap gasoline and after several years of market growth.
Jobs growth in May was concentrated in the private sector, which added 25,000 jobs, while government payrolls grew by 13,000.
Payrolls in the telecommunications industry were down 37,200 from April due in part to a Verizon Communications Inc. strike throughout the survey period.
But payrolls were weak even without the Verizon impact, with soft readings in manufacturing, transportation and temporary-help services. The mining industry continued to suffer the effects of low energy prices and shed 10,200 jobs. The construction sector also posted the second consecutive month of decline, shedding 15,000 jobs. The education and health sector added 67,000 jobs.
In May, 7.4 million workers who wanted a job couldn’t find one. And a broad measure of unemployment that includes Americans stuck in part-time jobs or too discouraged to look for work held steady at 9.7%, unchanged from April.Follow enlightenedlbrl