The U.S. added 217,000 jobs in May as labor markets seem to be gaining the kind of sustained momentum that has proven elusive as the economy has struggled to recover from the 2008 financial crisis.
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The headline unemployment rate was 6.3%, according to figures released Friday by the Labor Department. That rate is the same as in April, when 288,000 jobs were created, far more than had been expected.
Economists had predicted an addition of 218,000 jobs in May and that the unemployment rate would tick higher to 6.4%.
With May's additions the economy has now recovered all of the 8.7 million jobs lost during the recession that followed the crisis.
Since the crisis the economic recovery has occurred in fits and starts, with key sectors such as labor and housing appearing to gain traction only to stumble repeatedly. The May report suggests sustained momentum in the labor sector because it represents the fourth consecutive month in which more than 200,000 jobs were created.
The monthly average for jobs created during the past year now stands at 197,000, just below the 200,000 figure many economists have said would make a significant dent in the unemployment rate.
“The report is hardly shock and awe because it met expectations. But … it supports the theory that the economy is getting stronger following the cold, raw winter we just had, which accounts for the -1% (first quarter) GDP,” said Todd Schoenberger, managing partner at LandColt Capital LP in New York.
“The wild card is wage growth, though. It's nonexistent, and it will bring the minimum wage argument back to the front pages,” he added.
For months economists have been digging deeper into the Labor Department’s monthly employment report, looking for significant indicators of strength beyond the headline unemployment rate and the number of jobs created.
The labor force participation rate, a key gauge of the percentage of working-age Americans currently employed, has come under close scrutiny as large numbers of workers have left the workforce each month either due to retirement or out of frustration in finding a decent job.
The labor force participation rate was unchanged in May, at 62.8%, the Labor Department reported. The participation rate hasn’t moved much since October but is down by 0.6% during the past year.
The tepid labor force participation rate, which has hovered for months at its lowest level in four decades, is a primary reason the unemployment rate has fallen rapidly in the years since the recession ended in 2009.
David Kelly, chief global strategist for JPMorgan Funds, said weakness in the labor force participation rate is a reminder of “some sluggish U.S. economic fundamentals.”
“Lack of investment spending in recent years has sapped productivity growth while the retirement of the baby-boom is largely responsible for the weakness in labor force growth and neither of these problems are likely to be remedied over the next few years,” Kelly said ahead of the release of Friday’s labor report.
Given the Fed’s heightened interest in inflation recently, economists are currently keeping a close eye on monthly wage figures.
In May, average hourly earnings for all non-farm employees rose by 5 cents to $24.38. Over the past 12 months, average hourly earnings have risen by 2.1%, slightly higher than the Fed’s target inflation rate.
Wages were essentially stagnant in April, a situation that gave pause to economists.
It will now be up to the Fed to scrutinizing the May report to determine whether April’s leveling off was an anomaly or an indication that wages are in a holding pattern, which would be bad for the overall economy especially in terms of what it means for inflation.
Because the headline unemployment rate has proven misleading as an indicator for the health of the broader economy, the Fed has increasingly focused on the inflation rate to determine future policy decisions such as raising interest rates.
Inflation has hovered at 1% for months, a full percentage point below the Fed’s target rate of 2%. Central bank policy makers have said they won’t start raising interest rates until inflation approaches that target.
Wages will play a key role in pushing inflation higher toward the Fed’s desired threshold. When wages move higher workers spend more money, which creates demand for goods and ultimately pushes prices higher. All of these elements are signs of a strengthening economy, just what the Fed needs to begin raising interest rates.