Jobless Rate Hits Lowest in 16 Years; Hiring Slows--Update

By Eric Morath Features Dow Jones Newswires

Hiring slowed in May during a month when the unemployment rate fell to the lowest level in 16 years, suggesting some employers may be unable to find needed workers.

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Nonfarm payrolls rose by a seasonally adjusted 138,000 in May from the prior month, the Labor Department said Friday, and job gains in the prior two months were revised down. The unemployment rate fell to 4.3%, the lowest reading since May 2001. Economists surveyed by The Wall Street Journal had expected 184,000 new jobs to be added in May and a jobless rate of 4.4%.

"Given reports that job openings are near all-time highs, it suggests that businesses are struggling to fill these positions in an increasingly tighter market," said Beth Ann Bovino, chief U.S. economist for S&P Global Ratings.

The drop in unemployment suggests that the labor market is at or very near full employment, or the point when virtually all workers who are seeking a job have found one. Federal Reserve officials projected in March the jobless rate will average 4.7% to 5% over the long run.

While employers in several industries say it is harder to find workers compared with a few years ago, many are still reluctant to ramp up wages.

Average hourly earnings for private-sector workers increased by 4 cents to $26.22 an hour in May. From a year earlier, wages rose 2.5%. Annual wage gains have stayed near the 2.5% pace since late 2015, despite a steady decrease in the unemployment rate.

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Typically, economists would expect falling unemployment to coincide with better wage gains. When the unemployment rate was 4.4% in May 2007, wages for nonsupervisory workers were growing better than 4% annually. In May 2001, those wages were up 4% from a year earlier. Nonsupervisory wages rose 2.4% last month, from a year earlier.

The historically low unemployment rate likely gives the Fed leeway to increase the central bank's benchmark interest rate later this month. Officials had said they expected hiring to ease from the robust pace recorded in recent years.

"This jobs report almost certainly does nothing to shift the Fed's thinking in June, and we expect a rate hike," said Megan Greene, chief economist at Manulife Asset Management.

But the low unemployment rate comes with the caveat that the labor force shrank last month. The labor-force participation rate fell to 62.7% in May from 62.9% in April. The rate has been trending near the lowest levels in since the 1970s, a time when women were entering the labor force in larger numbers.

The figures largely represent an aging population of Americans are increasingly retiring, but it could hit that modest wage growth is failing to pull some potential workers off the sidelines.

Friday's report showed payroll gains were revised down a net 66,000 in April and March. Through May, employers added an average 162,000 jobs to payrolls each month, a slower pace than the 187,000 jobs added monthly in 2016.

The U.S. labor market has been one of the brightest spots in a long recovery marked by slow economic growth. Employers have added jobs every month since October 2010. Consistent hiring has come despite historically soft economic growth of near a 2% annual rate since the expansion began eight years ago this month.

Last month, hiring was improved in the construction sector and was relatively strong in health care. Retailers and manufacturers shed jobs and leisure and hospitality, a category that includes restaurants, increase at a slower rate. Employment at all levels of government fell by 9,000 last month.

An alternative measure of unemployment and underemployment, which includes those who have stopped looking and those in part-time jobs who want full-time positions, was 8.4% in May, versus 8.6% the prior month. That rate has fallen even more sharply than the unemployment rate over the past year.

The rate, designated U-6, averaged 8.3% in the two years before the recession.

Write to Eric Morath at eric.morath@wsj.com

(END) Dow Jones Newswires

June 02, 2017 11:07 ET (15:07 GMT)