US nonfarm payrolls increased by just 138,000 last month and job creation numbers from March and April were revised downward by 66,000, but the unemployment rate fell to a 16-year low of 4.3 percent, according to the latest statistics from the Labor Department. Reuters has the details:
May’s job gains marked a sharp deceleration from the 181,000 monthly average over the past 12 months. Job growth is slowing as the labor market nears full employment. Last month’s job gains could still be sufficient for the Federal Reserve to raise interest rates this month. … The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population.
The unemployment rate fell one-tenth of a percentage point to its lowest level since May 2001. It has dropped five-tenths of a percentage point this year. Last month’s decline came as people left the labor force. The survey of households from which the jobless rate is derived also showed a drop in employment.
The new jobs report comes less than two weeks before the Federal Reserve’s next policy meeting, when they will decide whether to raise the central bank’s benchmark interest rate. Observers say the Fed is likely to remain on course to raise rates again, despite the dip in job creation. But there is some disagreement among economists over whether this report indicates that the economy is slowing down or merely reflects a bump in the road, according to CNN Money:
Experts were split on the report. Some said it is a sign that job growth is slowing down after three straight years of jobs gains and major drop in unemployment. Others say May’s sluggish job gains don’t tell the whole story. The monthly jobs numbers can be volatile — and they are always revised. Other measures — such as jobless claims — reflect a healthy job market.
“I don’t think there’s any reason to expect hiring will hit a wall,” says Jim O’Sullivan, chief U.S. economist at High Frequency Economics, a research firm. “It’s just part of the ups and downs from month to month.”
One reason why Friday’s report has some labor market watchers worried is that it came in well below economists’ predictions of 185,000. But May jobs numbers “often are subject to seasonal quirks and come in low,” CNBC notes:
“May has proven to be a difficult month for payrolls in recent years as spring hiring slows down and recent college graduates have yet to enter the labor force,” Charlie Ripley, investment strategists for Allianz Investment Management, said in a note. “While today’s number disappointed, we cannot ignore the fact that labor market conditions (are) tight and finding available workers to fill positions is becoming more difficult.”
Another point of concern is the decline in the total labor force participation rate, which fell to 62.7 percent, analysts tell the New York Times:
The overall participation in the labor force has trudged along below 63 percent during the recovery, down from over 66 percent before the recession. But the tiny gains that had been made were knocked off this month, suggesting that fewer dropouts were dropping back in. Some economists pointed out that the retirement of baby boomers would continue to press down labor-force participation.
Ted Wieseman, a vice president and economist at Morgan Stanley, said there just were not that many discouraged left to return. “If the participation rate just stabilizes from here for a time, then job growth consistent with a stable unemployment rate is only about 100,000 a month,” he said.
One somewhat encouraging sign, however, is that the “U-6” rate—a broader measure of unemployment that also counts the underemployed and those too discouraged to look—also fell from 8.6 to 8.4 percent. As Bloomberg points out before the report was released, falling underemployment is one indicator the Fed is particularly hoping to see:
Though the unemployment rate is already below what Fed officials consider sustainable in the longer run, continued progress in mopping up the remaining labor-market slack calls for policy makers to refrain from speeding up their path of gradual hikes, according to Neil Dutta, head of U.S. economics for Renaissance Macro Research LLC. Easy borrowing conditions will nurture the economy’s expansion, which completes eight years this month, and underpin a healthy pace of job openings and hiring.
“Maybe we can let this run a little longer,” said Dutta, who, like most analysts, expects the Fed to raise interest rates at its June 13-14 meeting. “The longer we let the labor market boom, the more you’re able to get people off the sidelines.” Fed Governor Lael Brainard’s remarks this week reflect that view. “While it is encouraging that the share of employees who work part time for economic reasons has continued to move down, there may well be slack remaining along this margin,” she said in a New York speech.