US employers add modest 138K jobs; rate dips to 4.3 percent

Economists had expected a gain of about 185,000 new jobs in May, but a report from the Bureau of Labor Statistics published on Friday showed that the USA economy only added 138,000 jobs. The US unemployment rate fell to 4.3% in May, the lowest since 2001 (pdf).

The report said the USA added 138,000 jobs last month, compared to 211,000 jobs added in April, while the unemployment rate improved by one-tenth of a point to 4.3 percent - its best mark since May 2003. Over the past year, average hourly earnings have risen by 63 cents, or 2.5%. This particular measure includes not only the officially unemployed but also part-time workers who would prefer full-time jobs and people who want a job but aren't actively looking for one and so aren't counted as unemployed. May's drop in the unemployment rate was solidly in the second category.

"A hike in June is still on the table but the news flow will have to improve for the Fed to keep tightening in the second part of the year", said Thomas Julien, U.S. economist, at Natixis North America in NY. The number of long-term unemployed (people who have been jobless for 27 weeks or more) was essentially unchanged during the month at 1.7 million and they accounted for 24 percent of the unemployed.

March and April data was revised to show 66,000 fewer jobs created than previously reported. But productivity fell 0.6 percent in the first three months of 2017, coming after persistent weakness in previous years. "Today's numbers probably won't stop the Fed from raising rates this month". The wholesale and retail trade unemployment rate likewise fell from 4.8 percent in April to 3.1 percent in May.

Employment in food services and drinking places also continued to trend up in May (+30,000) and has grown by 267,000 over the past 12 months.

Construction payrolls rose 11,000 last month after decreasing by 1,000 jobs in April.

At their May meeting, Fed officials indicated that they were ready for another small increase if the economy strengthened after a sharp slowdown in growth over the winter that their official policy statement said was "likely to be transitory". The Fed will closely watch inflation and the jobs report when deciding whether or not to raise its rates. "That's always ugly", Dan North, chief economist at Euler Hermes North America, said of the decline. The retirement of the baby-boom generation is putting huge downward pressure on the participation rate, even as the improving economy should be drawing Americans back to work.

The 2016 May jobs report stunned everyone when the US only added 38,000 jobs (it was later revised up a little).

In order to keep up the growth in the working-age population, the economy needs to create 75,000 to 100,000 jobs per month.

As Ed Morrissey notes, all this looks more like an economy that is starting to stagnate rather than one that is ready to start growing rapidly. But job growth in May was down across many key sectors.

  • Wendy Palmer